What You Should Know About Retirement Investment in Singapore

When it comes to investing and saving for retirement, the recommendation is generally to begin early. Nevertheless, the current economic situation has introduced new hurdles, with several people concerned about job security.

It is precisely because of these difficult times that getting started early with retirement investment becomes even more crucial. According to market observers, starting early gives investors a longer runway to profit from the compounding effect over a lengthy period. Another benefit of this long runway is the capacity to weather market turbulence.

“In general, investors face a tough situation in which interest rates are low and equities markets are expensive. Any individual planning for retirement should be concerned about two things: their own work stability and income, which will be less. Their financial portfolio will likewise yield less.”

Investing in bonds is an ideal way of planning your retirement while working in Singapore. For instance, Singapore Savings Bonds (SSBs) are pretty appealing. The August 2022 tranche was so tempting that it was significantly oversubscribed. The number of applications received was around three times that of the allocated funds. As a result, several investors did not receive their entire required allocation and had to reapply for the following issues.

Are Singapore Savings Bonds a suitable investment for your extra cash? What are some SSB alternatives to consider? We have covered some essential points for you.

Get to Know What Are Singapore Savings Bonds

Singapore Savings Bonds (SSBs) are a kind of financial instrument that allows individual investors to grow their money. SSBs are Singapore Government Securities issued and guaranteed by the Singapore government. Because they are a ‘bond,’ you are effectively lending money to the Singapore government.

SSBs have the following characteristics as an investment:

  • Since it is supported by the Singapore Government, it has a lower risk.
  • Returns on SSBs are low compared to other investments, such as stocks and funds.
  • High liquidity is a feature, as you can withdraw investments anytime.
  • You can start your investments with as low as SGD 500. Maximum investment amount (SGD200,000 per person)
  • Step-up interest must be paid (increasing each year until Year 10)
  • SSBs are non-transferable. You cannot exchange, trade, or pledge them as collateral.
  • They have 10-year maturities, though SSB holders can redeem them without penalty. SSBs, unlike corporate bonds, cannot be sold to a third party. They are only redeemable through the Singapore Government.

Get to Know How SSBs Work

A new Savings Bond with a tenure of up to 10 years will be released by the Monetary Authority of Singapore (MAS) every month. The interest rates are higher if you wait for a long. For instance, you will get more money as interest rates “step up” each year. The interest rates for the 10-year duration are fixed and locked in at the time of issue.

You can redeem your Savings Bonds anytime and will not be penalized for leaving the investment early. The interest will be paid to you every six months after the bond is issued, and it will function similarly to dividend investing. If you deposited cash, the interest collected would be automatically sent into the bank account associated with your CDP Securities account. If you invest using SRS money, the interest will be credited to your SRS account.

By analyzing the costs and rates, you may earn more money by investing in one of the brokerage accounts.

Bond ETFs traded on the Singapore Stock Exchange

Bond index funds can help you diversify your portfolio while reducing risk. Read on if you want to invest in bond index funds on the Singapore Exchange (SGX).

Bonds are popular investments because they provide consistent returns and are typically low risk. Although they do not produce as high a return as other investment vehicles like equities, they can give consistent yields and thus be a suitable source of fixed income.

Investing in corporate bonds, on the other hand, has increased interest rate risks, market risks, and credit risks unless you invest in reasonably solid government bonds.

Bond exchange-traded funds (ETFs), which are indexes that own a portfolio of bonds, are one method to handle this. Bond ETFs feature lower costs and transaction fees than traditional bonds, making them more appealing to certain investors.

If you’re looking for the finest bond index funds to invest in on the SGX, these are the top bond ETFs to purchase right now. A bond often has a maturity period during which you are not permitted to withdraw your cash. In exchange, you will get interest payments every six months or yearly, as well as the whole principle amount when the bond matures. Most bonds are classified as fixed-income investments because they provide predictable returns during the life of the bond.

A bond ETF, on the other hand, is a portfolio of bonds that is more diversified and less volatile in general. Bond ETFs, like stocks and ETFs, are exchanged on the stock exchange. This implies that you can actively trade bond ETFs whenever you want, making them more liquid because you don’t have to wait for your money to mature. Most bond ETFs also pay monthly dividends, providing a more consistent income source.

Bond ETFs, on the other hand, often have higher expense ratios, which are fees paid to a fund manager to administer the ETF. With interest rates so low, the expense ratio will eat into the modest yield provided by a bond ETF, further reducing your profits.