Receiving ang pow money is just the beginning. To ensure a prosperous year, put your money to work for you in these 5 ways.
It’s Chinese New Year, and that means it’s ang pao time. We know all you SingSaver readers are too savvy to spend it all at once, right?
But at the same time, you’re probably wondering if there’s a better way to save it, besides stuffing it in your sock drawer. Here are some options you can consider.
1. Singapore Savings Bonds
There’s a minimum of S$500 to buy these, so you may need to top up your ang pao money with some additional savings; but it’s well worth it.
Singapore Savings Bonds (SSBs) are essentially loans that you make to the Singapore government. These loans are among the safest you can make, as the Singapore government has never before failed to repay its debts.
SSBs have an interest rate that “steps up” every year, before finally maturing after 10 years. If you keep the bonds for the full 10 years, you would receive the equivalent of around two to three per cent interest per annum. This is higher than you would receive from some bank fixed deposits.
One other upside to SSBs is that, if you need the money in a pinch, you can cash out at the end of any month. You’ll get less interest that way, but you’ll retain any interest you’ve already accrued (with bank fixed deposits, you typically lose any accrued interest if you withdraw the cash before the maturity date).
This makes SSBs a more flexible option for some.
2. Emergency Fund
This one is for the teens out there, or those nearing adulthood. An emergency fund is meant to provide for six months of your expenses – this prevents you needing credit or personal loans, during emergencies.
The sooner you start building your emergency fund, the happier you’ll be later – and we don’t just mean because you’re financially secure. Most people take one to two years to build their emergency fund, setting aside around 20 per cent of their monthly income each month.
The sooner you finish building the fund however, the sooner you have more disposable income – and you can start putting aside money for fun things instead, like travelling.
3. Buy some Blue Chip Stocks
Think it’s impossible to own stocks without a large financial commitment? Not at all. Banks such as POSB and OCBC have blue chip investment programmes, which can start buying blue chip stocks for you for as little as S$100 a month.
Blue chips refer to the top 30 companies in Singapore by market capitalisation – these are large, stable corporations that are safe to invest in. Returns of around four to five per cent are possible.
What’s also helpful is the flexibility involved – you can quickly sell the shares when you need to, so the money isn’t stuck as it would be with some other types of investments, such as Investment-Linked Policies.
4. Put it in Your CPF account (If You Have One)
Your CPF Ordinary Account (CPF OA) grows at 2.5 per cent per annum, regardless of market conditions. This sum is guaranteed. Likewise, your CPF Special Account (CPF SA) grows at four per cent per annum.
The downside to CPF monies is that they’re stuck once committed – it’s meant to provide for your retirement, so it’ll be toward the end of your working life before you see the money again.
However, padding your CPF account can help with many future needs – from paying your home loan, to providing post-retirement income. The more you put into it now, the less you need to worry about such issues later.
You can make voluntary contributions to your CPF at any time, via their website.
5. Buy some ETFs
Exchange Traded Funds (ETFs) track a benchmark index, such as the Straits Times Index Fund. Depending on whether the index moves up or down, the ETF will follow suit. Because there’s no active management beyond imitating the index, the management fees are low (this translates to better returns for you).
Inclusive of dividends, ETFs such as the ST Index Fund have been known to deliver annualised returns of over eight per cent per annum, over 10 years.
ETFs provide a degree of protection through diversification – it would take the majority of Singapore’s top 30 companies to take losses, for example, for the ST Index Fund to edge downward. And while that can happen, most stock markets rise with time.
ETFs like the ST Index Fund can also be bought through blue chip investment programmes (see point 3), so you can get started for as little as S$100 a month.
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By Ryan Ong
Ryan has been writing about finance for the last 10 years. He also has his fingers in a lot of other pies, having written for publications such as Men’s Health, Her World, Esquire, and Yahoo! Finance.