3 Common Ways to Grow Your Money, Even With Limited Investment Knowledge

Everyone understands the importance of growing their wealth over the long-term. The aim should not just be to beat inflation, but to outpace inflation so that your wealth and spending power increases over time.

While the inflation rate in Singapore may be at a moderate level, growing at a rate of close to 1.6% since 1984, according to Statista, there are important reasons why you still need to grow your money at a higher rate. One of the main reasons for setting aside funds to invest over the long-term is so that you will have a tidy pot waiting for you during retirement. 

This also provides a safety buffer against any spikes in the cost of living during your retirement. For example, despite a moderate inflation rate since 1984, inflation rose to over 5% in 2008 and 2011, and dipped to –1.4% in 1986 and -0.5% in 2015 and 2016.   

In addition, you also need to combat rising medical costs, which you will likely spend more on as you age and which has been experiencing significantly higher inflation rates compared to most other common expenses. For example, you may choose an early retirement or switch to a lower-paying but more meaningful role when you grow older.

Another reason why you should care about growing your retirement savings is so that you can take advantage of the long horizon to compound your investment returns.

With this in mind, here are three simple ways you can start growing your money today.

1. Investing your money in the stock market, via country ETFs

Even if you may not be confident in your own ability and knowledge to invest in stocks on your own, you can start investing in exchange traded funds (ETFs) listed on the Singapore Exchange (SGX) and other foreign exchanges through a brokerage account.

Firstly, an ETF pools together the funds of many investors to invest in assets that track the performance of an index. Typically, country ETFs track the performance of the largest and most liquid stocks listed in that country – thereby providing the benchmark market returns.

By investing in a country index, you are immediately diversified to the largest and most liquid stocks in the country and will earn the market returns. For example, Singapore’s Straits Times Index (STI) ETF comprises 30 blue chip names in Singapore, including DBS, SingTel, Keppel Corp and CapitaLand. You can also invest in ETFs that track the S&P500 for exposure to the U.S. market or Hong Kong’s Hang Seng Index (HSI).

Once you have picked up sufficient knowledge, you can also choose to go down the DIY route by picking individual stocks and bonds that you think will do well.

You can consider investing in ETFs, and individual stocks, via a dollar-cost averaging strategy by leveraging on regular savings plan offered by four brokerages in Singapore – OCBC Blue Chip Investment Plan; DBS Invest Saver; FSMOne ETF regular Savings Plan; and Phillips Share Builders Plan. Alternatively, you can also choose to embark on regular investment plans with a robo-advisory firm or fund manager.

2. Buying insurance to build a safety net, while growing your funds

While investing may yield greater returns, it also comes with a higher volatility. This means you need to be able to stomach swings in the value of your investment portfolio, be it in the stocks, bonds, ETFs or mutual funds that you invest in.

Another way to grow your money is to put it into a long-term endowment plan. Many plans in the market actually provide you with the flexibility to determine the number of years you wish to save for – e.g. 10, 15, or 20 years.

Many plans also offer flexible payout options, enabling you to withdraw guaranteed cash payouts during the policy term, to pay for emergencies or reward yourself with a holiday. Alternatively, you can normally let your funds accumulate towards a higher lump sum at the end of the policy term for your child’s university tuition fee or your retirement.

While growing your funds in the endowment plan, you can also choose to protect your downside with riders. Many endowment plans give you the option to purchase coverage against things like death and terminal illness, or provide optional riders to waive subsequent premium payments in the event of disability or diagnosis of a critical illness.

3. Contributing to your CPF Special Account (SA) (Information as of May 2020)

Often, when you try to grow your money, you have to take on a certain level of investment risk and understand that the returns you expect may not be guaranteed. By making contributions to your CPF Special Account (SA), you are able to compound your retirement funds at 4.0% per annum (p.a.), without taking on any investment risk.

To boost your retirement safety net, the first $60,000 of your combined CPF balances (with up to $20,000 from your Ordinary Account) earns an additional interest of 1.0% p.a., and the first $30,000 of balances earn an extra additional interest of 1.0% p.a. once you are over 55.

What’s more, you also get to claim a dollar-for-dollar tax relief on up to $7,000 of CPF contributions made under the Retirement Sum Topping Up (RSTU) Scheme, as well as up to another $7,000 for RSTU top-ups to a loved one’s SA or Retirement Account (RA).

However, when you make an RSTU top-up, you need to understand that it is a one-way transfer. Any funds that you put into your SA or RA cannot be withdrawn until you turn 55.

Even at this juncture, you can only take out anything above the Full Retirement Sum (FRS), which will be $181,000 in 2020. If you do not have the FRS, you can choose to pledge your property and withdraw anything above the Basic Retirement Sum (BRS) of $90,500. If you do not have these sums in CPF savings, you can still withdraw a minimum amount of $5,000.

The primary goal of your CPF savings is to fortify your retirement funds. When you turn 65, these contributions start to bear fruits in the form of your monthly CPF LIFE payouts, based on the amount of savings you have in your RA.

Start growing your money today

As costly as it is in Singapore, there are simple ways you can start building your nest egg today. The first thing you should do is pay close attention to what you’re spending on. Filter your expenses based on your wants VS your needs, and you will be able spot a few monthly expenses that you can easily cut out.

Before you start investing, you should also look first at all the debt that you currently carry and to pay down the high-interest credit card debt or personal loans.

As you progress in your savings and paycheck as you climb the corporate ladder, be attentive to your lifestyle inflation. Often, you naturally start spending more on lifestyle upgrades and comfort as you earn more. By sticking to a modest lifestyle, you can set aside more of your money each month to put towards growing for the future.

By starting early, you give yourself the best chance to compound your money and to ride out the short-term volatility of the markets. If you’re unsure of how to start, you should approach more experienced family and friends or even speak to a trusted financial consultant for advice.

When you do start, remember to diversify your investments, across both asset classes and geographies and sectors.

Disclaimer:

This article is for general information only and does not take into account the specific investment objectives, financial situation or needs of any particular person. The views expressed herein do not necessarily reflect the views of AXA Insurance Pte Ltd and should not be construed as the provision of advice or making of any recommendation. There is no intention to distribute, or offer to sell, or solicit any offer to purchase any product. We recommend that you seek the advice of a qualified financial advisory professional before making any decision to purchase an insurance or investment product. Whilst we have taken reasonable care to ensure that all information provided was obtained from reliable sources and correct at time of publishing, information may become outdated and opinions may change. We are not liable for any loss that may result from the access or use of the information herein provided.