Want to protect your investments against the effects of inflation and the GST hike? Here's what you should be investing in.
With inflation hitting hard, interest rates rising, and the increase in GST, prices of goods and services have become more expensive.
Even if you're fortunate to have an income that keeps up, you may also be thinking of ways to manage higher expenses for the future.
The most obvious way is to change your spending habits and reduce your expenditures.
With some knowledge and guidance, having a well-diversified portfolio can go a long way to help you keep up with inflation while minimising risk.
Here are some asset classes that can help you hedge against inflation.
Table of contents
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Stocks
Although historical performance is not indicative of future success, stocks are proven to be the best way to build wealth.
The returns have surpassed those of bonds, savings accounts, fixed deposits, precious metals, and other investment vehicles over the years. For example, the S&P 500 index, which tracks the 500 biggest US companies, has an average annual return of 16.4% since 2012.
For perspective, an investment of S$12,000 per year with an annual compounded rate of 16.4% will become S$250,173.24 in 20 years.
When you invest in stocks, you’re investing in the company because you believe in its prospects and growth. However, a less risky way to invest in stocks is to invest in exchange-traded funds (ETFs). ETFs consist of a basket of stocks that aim to replicate a particular index, such as the S&P 500 or Nasdaq 100.
More importantly, the return rate from stocks is higher than the inflation rate, and fits into the 60/40 strategy, where 60% of your investment portfolio consists of equities (stocks) and the remaining 40% are invested in bonds. This allows investors to generate consistent returns while safeguarding their portfolio against risk over time, even during times of market volatility.
Mutual funds
Aside from ETFs, mutual funds are also great at diversifying your investment portfolio.
Like ETFs, there are various mutual funds available; there are mutual funds that consist of different asset classes such as stocks and bonds, or are structured to track an index or indices.
The main difference between ETFs and mutual funds is that the latter are actively managed by a fund manager, who works to ensure the fund can beat the market and generate positive returns.
Webull provides investors access to quality mutual funds by partnering with global fund houses and Morningstar Ratings. This helps investors evaluate a mutual fund's performance with ease.
Webull also offers a diverse selection of mutual funds such as cash funds, equity funds, fixed-income funds and multi-asset funds covering a broad range of strategies with many more to come!
Webull does not charge any subscription or redemption fees when you trade mutual funds on their platform. While you do need to pay a management fee, the benefit is that there’s a lot less homework and expertise involved as you don’t have to spend time doing research or managing the fund.
Furthermore, Webull is currently offering a welcome promo of up to US$150 worth of trading vouchers (promotion ended)
⚡Flash Deal⚡: Open a Webull account and fund a minimum of USD 2,000 to receive a S$120 Shopee voucher (no min spend). Fund USD 10,000 to get a Dyson Micro 1.5kg Vacuum (worth S$599) or a S$420 Shopee Voucher (no min. spend). Valid till 31 October 2024. T&Cs apply.
Webull Welcome Offer: Enjoy 0 commission US options trading, up to USD1,500 transfer-in rewards, and up to USD350 cash voucher plus 30 days of returns up to USD345 when you complete additional requirements. Valid 31 October 2024 2024. T&Cs apply.
Commodities
During inflation, commodities such as oil, gold, silver, and agricultural products tend to see a rise in prices, and tend to be popular among investors.
You can invest in commodities directly by buying the actual physical material or indirectly through a mutual fund, stock, or ETF that invests in commodities.
For example, a gold ETF allows you to invest in gold without buying physical gold. There are gold ETFs that track the prices of gold or companies that are in the gold industry, namely those that mine, process, or deal with gold.
Some of the popular gold ETFs and stocks include iShares Gold Trust ETF (IAU), SPDR Gold MiniShares Trust ETF (GLDM), SPDR Gold Shares (SGX: O87), and iShares Gold Trust ETF (NYSE: IAU).
Meanwhile, you can also invest in precious metal mutual funds that expose you to precious metals such as the Franklin Gold and Precious Metals Fund Class A.
That said, commodities can be extremely volatile as prices tend to fluctuate based on demand and supply. Therefore, investing in commodities is also very risky.
Related to this topic:
Bonds
Government-issued bonds such as the Singapore Government Bond (SSB) and Singapore Treasury bill (T-bill) have gained popularity recently as their interest rates have been inching up in recent months, mainly because interest rates have also gone up.
The SSB is a 10-year bond with a “step-up” interest rate, where the interest rate increases each year, peaking in the 10th year. For example, here are the interest rates for the February 2023 tranche (GX23020X), which has a 10-year average interest rate of 2.97%:
Year from issue date |
1 |
2 |
3 |
4 5 6 7 8 9 |
10 |
Interest % |
2.84 |
2.84 |
2.84 |
2.84 2.84 2.84 2.98 3.20 3.33 |
3.33 |
Average return per year |
2.84 |
2.84 |
2.84 |
2.84 2.84 2.84 2.86 2.90 2.94 |
2.97 |
Interest for the SSB will be paid out every six months, and you can also redeem your SSB at any month without any penalty. At the end of the 10th year, your principal investment and the final interest payment will be paid out to you.
Meanwhile, T-bills are short-term bonds consisting of either six months or a year. However, instead of paying out interest like the SSB, you buy T-bills at a discount value and receive the full amount when it matures.
For example, suppose you invested S$10,000 to buy a 6-month bond with a yield of 4% p.a., you’ll only need to pay S$9,600 upfront. When the bond matures, you’ll receive S$10,000, earning you S$400.
As mentioned, T-bills have been gaining popularity recently as the yields have been reaching historic highs; the 6-month T-bill in January 2023 (BS23100Z) had a yield of 4.2% p.a., while previous T-bill tranches have hovered around 4.2% to 4.44%
One thing to note about investing in Singapore government bonds is that they have the highest ‘AAA’ credit rating among credit rating agencies, meaning that they’re low-risk investments with less likelihood of going under.
Aside from government bonds, you can also invest in bond funds via mutual funds. Also known as fixed-income funds, these funds are actively managed by fund managers and consist of different government and corporate bonds across different sectors, industries, and markets. This provides instant diversification to hedge against market volatility.
You can buy fixed-income funds via banks or online brokerages such as Webull. At the time of writing, you can redeem your bonds without any redemption fee and no subscription fee or platform fee.
REITs
Real Estate Investment Trusts (REITs) are companies that own, invest, and operate income-generating real estate.
By pooling investment capital from investors, REITs buy residential, commercial, and industrial properties and lease them out to tenants. The rental income collected is then distributed back to investors through dividend payments. In fact, REITs are required to pay out at least 90% of their earnings to investors. What’s more, the income that you receive is tax-exempted.
By investing in REITs, you buy shares of a REIT on the stock market, allowing you to invest in real estate and receive passive income, without the need of buying or managing a property.
Though a combination of rising interest rates and inflation have seen Singapore REITs underperforming in 2022, they have remained resilient.
Furthermore, Singapore’s GDP is expected to grow between 3 to 5%, and some sectors, including the logistics, data centres, and healthcare economy as air travel begin to recover.
Webull fees, charges and promotions
Currently, Webull isn’t charging any subscription fee, redemption fee, or platform fee for mutual funds. However, you may need to pay a management fee charged by the respective fund managers and companies issuing the funds.
How to open and fund your Webull Singapore account
Opening your Webull account
To open your Webull account, follow these steps:
1. On the Webull website or Webull app, click “Sign Up”
2. Follow the on-screen instructions to register for a Webull account
3. You can also sign up using Singpass to shorten the process
Funding your Webull account
You can fund your Webull account via the following methods:
1. Electronic Direct Debit Authorisation (eDDA)
2. FAST
3. Telegraphic transfer (TT)
Any transfer fees incurred that are related to the deposit, such as handling commissions, cable charges, and agent bank charges will be borne by you.
⚡Flash Deal⚡: Open a Webull account and fund a minimum of USD 2,000 to receive a S$120 Shopee voucher (no min spend). Fund USD 10,000 to get a Dyson Micro 1.5kg Vacuum (worth S$599) or a S$420 Shopee Voucher (no min. spend). Valid till 31 October 2024. T&Cs apply.
Webull Welcome Offer: Enjoy 0 commission US options trading, up to USD1,500 transfer-in rewards, and up to USD350 cash voucher plus 30 days of returns up to USD345 when you complete additional requirements. Valid 31 October 2024 2024. T&Cs apply.
*Terms and Conditions apply. For detailed terms and conditions and full disclaimer, please refer to Webull’s website at https://www.webull.com.sg/. This advertisement has not been reviewed by the Monetary Authority of Singapore.
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