7 Popular Types Of Investment In Singapore (And Tips To Use Them For Optimal Gains)

Alevin Chan

Alevin Chan

Last updated 07 October, 2022
 

From CPFIS to ETFs, robo-advisors and stocks, here are 7 most popular investments in Singapore, and how you can use them fruitfully.

 

We know that investing is important. When performed correctly, investing can help us grow our wealth, protect us against inflation risk, and even provide a steady stream of passive income (so important in the uncertain times we live in).

However, given the myriad investment schemes and products out there, it can be difficult knowing where to start. But as when observing the markets, the wisdom of the masses help point us in the right direction.

Accordingly, here’s a look at the seven most popular types of investments in Singapore, and how you can use them for optimal gains.

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#1: CPF Investment Scheme

Perhaps the most commonly known investment scheme among Singaporeans, the CPF Investment Scheme (CPFIS) allows you to use your CPF monies to invest in various products, including insurance products, unit trusts, fixed deposits, bonds and shares.

There are basically two schemes you can participate in, each differing in the source of funds used, as well as the types of products you can invest in.

The following table highlights the core differences.

Account type Source of funds Allowed investment products Restrictions
CPFIS-OA OA balance, less first S$20,000 Unit trusts, ILPs, Singapore Government Bonds, T-bills, ETFs, Fund Management Accounts Must first set aside S$20,000

35% of investible balance for shares, property funds and corporate bonds

10% of investible balance for gold and gold products

CPFIS-SA
SA balance, less first S$40,000 Unit trusts, ILPs, Singapore Government Bonds, T-bills

Excludes products deemed high risk
Must first set aside S$40,000

Investment in shares, property funds, corporate bonds, gold and gold products not allowed

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How to use for optimal gains

At the end of the day, if you’re not seeing returns much higher than the CPF OA or SA default interest rate of 2.5% and 5% respectively, you might be better off leaving your CPF accounts undisturbed for steady and risk-free growth.

Check out our full guide to CPFIS here.

#2: Supplementary Retirement Scheme

You may be familiar with the Supplementary Retirement Scheme (SRS) as a voluntary contribution scheme which lets you squirrel away more money for retirement, over and above your standard CPF contributions.

At present, you can deposit up to S$15,300 a year in your SRS account. Why do so? So you can earn some relief towards your personal income tax, of course, which can lower the amount you have to pay.

However, your SRS account only attracts a paltry interest rate of 0.05% per annum, which in financial circles is known as literal peanuts. More crucially, leaving your SRS funds idle makes you lose money because of inflation.

How to use for optimal gains

The strategy for SRS funds is simple. Because even low-interest investments such as bonds give you a higher interest rate, investing is the superior choice.

You may invest your SRS account in a range of products, including:

  • Bonds
  • Singapore Government Securities/Singapore Savings Bonds
  • Fixed Deposits (Local and foreign currencies)
  • Shares
  • Unit trusts
  • Insurance plans (single premium)

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#3: Singapore Savings Bonds and T-bills

Another popular investment product are Singapore Savings Bonds (SSBs), which are sought out as a source of steady, if not exactly stellar, returns.

Firstly, what is a bond? In simple terms, a bond is issued by an entity to raise money from the public, with the promise to pay back the face value of the bond on a fixed date, while disbursing interest payments at fixed intervals.

The stability of bonds, then, depend on the pedigree of the issuer. If the bond issuer is a sketchy fly-by-night company that deals primarily in beach sandcastles, you’d not feel very confident about lending them your money.

In the case of SSBs, the issuer is the Singapore Government, which has as solid a reputation as they come. That is why SSBs are widely considered to be a safe and popular investment.

While SSBs are dependable, they aren’t very likely to make you very rich on their own. The average yearly returns offered by recent tranches hover around the 1% mark – and that’s if you hold them for the full 10 years till maturity.

For treasury bills (or T-bills), the latest issuance is for 6-months and 1-year T-bills, which require a minimum investment of S$1,000. Similar to SSBs, they are backed by the Singapore government and are considered safe investments. The previous 6-month T-bill gave a yield of 3.32% p.a., arguably the highest in 2022. 

The 6-month bill opens twice every month, while the 1-year bill opens once every quarter. Both are open for application for a week before the auction dates.  

For individual investors, there are three ways to submit your application

1. Cash: DBS/POSB, OCBC and UOB ATMs and internet banking portal

2. SRS application: Internet banking portal of your SRS Operator (DBS/POSB, OCBC, or UOB).

3. CPFIS: You will need to submit an application in person at any branch of the CPF Investment Scheme (CPFIS) bond dealers (DBS/POSB, OCBC, or UOB).

The tranche usually closes 1-2 business days before the auction date. For the exact closing date for T-bills applications, it's best to check with the banks.

Low risk low returns investment vehicles

How to use for optimal gains

With their slow and steady nature, SSBs should be used to hold sums of money that you are seeking to protect against erosion by inflation. (And you usually pursue this ‘preservation’ angle when you’re close to or in retirement.)

While a sub-1% return rate won’t exactly inspire excitement, it does the job considering the inflation rate from 2017 - 19 was under 0.6%.

#4: Real Estate Investment Trusts

If you get a kick out of the idea of owning a piece of Singapore’s gleaming skyline, check out Real Estate Investment Trusts (REITs). Basically, a REIT is a professionally managed fund that pools together money from thousands of individual investors, which is used to invest in real estate.

REITs function in many ways. Some focus on developing commercial properties, such as shopping malls. Others look to buy properties instead, and rent them out to tenants for rental income.

How to use for optimal gains

REITs have grown in popularity among investors for their ability to provide both growth and steady income. Think of a popular shopping mall, which appreciates in value as it continues to attract and retain high-paying tenants.

As such, REITs have an undeniable place in many investment portfolios. Generally, you should invest more in REITs while you are growing your wealth. When shifting towards wealth preservation, you should retain REITs that provide steady dividends.

#5: Exchange-traded Funds (ETFs)

Exchange-traded Funds (ETFs) offer a way for investors to invest in a basket of assets, without having to buy individual stocks and shares. These ‘baskets’ are composed into funds by professional trading houses, which offer shares of the fund to individual investors.

Typically, ETFs aim to replicate the performance of an index, so you can think of them as a ‘shortcut’ to investing in a particular market. For example, the Straits Times Index (STI) tracks the performance of the top 30 listed companies in Singapore. Hence, investing in an ETF that tracks the STI — such as the SPDR STI ETF or the Nikko AM STI ETF — allows you to invest in all 30 companies, without individually buying their stocks.

Note that when you invest in an ETF, you own shares of that fund, but not the underlying assets, which could be any combination of stocks, shares, commodities or other securities, even derivatives.

How to use for optimal gains

Because ETFs can be composed across different assets and industries, they offer investors a high degree of diversification.

As such, you should add ETFs to your portfolio to reduce risks that arise from over exposure to a particular market. ETFs also offer lower fees than other investments like unit trusts, so if you are facing high fees, adding more ETFs will help you pay less.

#6: Robo-advisors

The latest buzzword in investing, robo-advisors is a fancy way of saying that you are investing under the guidance of algorithms, instead of relying on the traditional wisdom of human professionals.

Robo-advisors are not limited to any one type of investment. Instead they typically draw from a range of exchange-traded funds that range from different asset classes to compose your investment portfolio. Their investment strategy is usually based on your financial goals; just tell a robo-advisor what you want to achieve and they’ll recommend investments accordingly.

In this way, robo-advisors make investing easy for beginners or those with little to no investment knowledge. They also offer cheaper fees and a less complicated fee structure, which should prove more palatable to the inexperienced.

How to use for optimal gains

Robo-advisors are best suited for investors who don’t want to have to think too much about their investments. They also work well with regular, ongoing fund injections.

If you’re not sure which one to choose, try splitting your investment budget between two or three robo-advisors you think will work for you. Then, check back in 6 months or a year to see which one performed the closest to your expectations.

#7: Stocks

And for our final entry, we come to stocks, the OG, street-cred granting investment.

Simply put, stocks or shares represent an ownership stake in a company, and are traded via the stock exchange. You earn money by making capital gains, which is when you sell your stock at a higher price than when you bought it.

Sounds easy, but how do you know when your stocks will go up? And how high? Trying to follow the roller-coaster trajectory of a typical trading day is nothing if not nerve wrecking.

Another barrier to entry: Stocks typically are traded in lots of 100, so trying to invest in a high-performing stock, like Apple Inc, for example, (USD$123.24 per stock at the time of writing) can incur a high initial outlay.

Alternatively, you can invest in stocks that give you dividend returns, which can help you form a passive income stream.

How to use for optimal gains

Although trying to pick winning stocks can be difficult, stocks can be useful for many purposes.

For example, a collection of stocks in fast-growing fintech startups can provide impressive short-term gains. On the flipside, investing in time-proven stocks can act as a counterbalance in a commodities-heavy portfolio.

Subscribing to expert stock tips, or learning from professional traders can increase your chances at success, but there’s no substitute for hard-won experience, finely honed instinct and sometimes, pure dumb luck.

Read these next:
CPF Investment Scheme (CPFIS): Guide To Investing With Your CPF
Got S$50? Here Are 3 Easy Investments To Start Growing Your Money (And 1 To Avoid)
Guide To Supplementary Retirement Scheme (SRS) And Tips To Maximise It
Guide To Singapore Savings Bond (SSB): Is This The Right Investment For You?
Dollar-Cost-Averaging vs Lump Sum Investing In Singapore: Which Should You Choose?

 

An ex-Financial Planner with a curiosity about what makes people tick, Alevin’s mission is to help readers understand the psychology of money. He’s also on an ongoing quest to optimise happiness and enjoyment in his life.