Property Investment For Beginners: Starting Your Portfolio – Investing in 6 Investments in Singapore That Offer Guaranteed Principal and Income If guaranteed principal and income are good, here are 6 types of investments you should check out.

It is no wonder that more and more people are turning to safe investments today. Financial markets are highly volatile and rising interest rates have boosted returns on safe investments. However, there are not many investments in Singapore that provide a guaranteed source of income.

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For some investments that claim to offer guaranteed returns, you need to rule out potential scams — meaning investments that are too good to be true. You can refer to the MAS Investor Alert List, which provides a list of unregulated individuals or entities as a first level of check. Remember that just because a company isn’t on the list doesn’t mean it isn’t a scam.

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Another thing to understand is that when you enjoy such security in your investments and visibility of your investment returns, you must be prepared to accept relatively low returns that are close to the risk-free rate.

Risk-free return refers to the rate of return that you can earn without taking any risk. Theoretically, there is no such investment because we always take some risk while investing.

Below, we look at six types of investments where you can put your money that 1) guarantee your capital and 2) offer a guaranteed return on investment. This is a great way to start for those who are extremely risk-averse or uncertain about investing. Such investments can serve as a springboard to start investing in risky investments.

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As mentioned, in today’s high interest rate environment, you can get a relatively modest return on your investment.

A good proxy for the risk-free rate in Singapore is the yield that the Singapore government, currently one of the few triple-A rated economies in the world, pays on its 6-month or 1-year Treasury bills. Treasury bills or T-bills are the shortest duration government securities available.

The latest issuance of 6-month T-bills beginning October 2023 gives a cut-off yield of 4.07% per annum. The most recent 1-year T-bill issued in August 2023 paid interest at 3.74% – a slightly lower interest rate.

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Treasury bills are generally suitable for investors looking for a short-term investment of six months to one year without taking too much investment risk.

The Singapore government issues long-term bonds ranging from 2 years to 30 years. These bonds typically offer higher returns than short-term T-bills. All things being equal, a bond with a longer maturity is generally considered riskier than the same bond with a shorter maturity period. Nevertheless, it is considered to be close to risk-free and therefore offers a rate of return close to the risk-free rate.

However, in the current interest rate environment, short-term bonds offer higher short-term interest income, while longer-term bonds offer lower interest income.

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According to the yield curve depicted on the MAS website, Singapore government bonds pay these rates As you can see in the table below, the longer the duration of the bond, the lower the yield – again, this is the opposite of what a typical yield curve should look like.

In September 2021, the Singapore government announced that it will launch a series of major long-term infrastructure projects that will benefit generations of Singaporeans. Singapore bonds are considered Singapore Government Securities (SGS) bonds. The Singapore government launched the 50-year Green SGS Bond in August 2022.

By now, you’ve noticed a recurring theme. Investments that guarantee your capital and your income are bonds issued by the government.

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First launched in October 2015, SSB pays a tiered interest rate every year up to the 10th year. This means that the bonds offer lower returns in the early years and if the investor does not redeem the bond, it will continue to pay a higher rate every year until the 10th year. This is primarily in recognition of the fact that investors hold bonds for the long term.

If you stuck with it for the entire 10-year period since its launch in October 2015, here is the rate per SSB episode.

Generally, SSBs offer higher liquidity, allowing investors to redeem them at any stage without worrying about the market price. This means that SSB must pay a similar but slightly lower interest rate than other comparable government securities which generally do not offer this feature.

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As shown in the chart above, SSB interest rate yields have been on a downward trend since early 2019, but have risen strongly with inflation and Fed rate hikes. The latest SSB issue in October 2023 is offering a 10-year yield of 3.32% per annum. If you have SSB for just one year, you can still earn 3.21%.

Interestingly, the 1-year SSB rate in the October tranche is higher than the 10-year average yield in the September tranche. This really speaks to the “longer-term” interest rate environment we live in today.

Although not often referred to as an investment, fixed deposits offer a way to earn good returns instead of keeping your money in a savings account or under your pillow. For reference, three local banks in Singapore currently offer the following Singapore-dollar fixed deposit rates.

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Of course, many other banks offer their own fixed deposit schemes and promotional rates that are significantly better than the board rates. Many of them, including the three above, may come with certain conditions that you need to earn the promotional rates.

Looking at the offer statistics, DBS is offering the best board rate on fixed deposits. OCBC’s board rates do not seem to match those of the other two banks. Note that these are based on across-the-board rates, and individual banks may offer promotional rates that are more competitive.

Additionally, deposits from all wholly owned banks and finance companies in Singapore are covered by the Singapore Deposit Insurance Scheme, insuring up to $75,000 of your deposits in each account. It will increase to $100,000 in April 2024. A total of 37 Singapore Deposit Insurance Scheme members are listed on the SDIC website, all wholly owned banks and finance companies in Singapore.

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To earn better interest income, you can also consider topping up your CPF in your Special Account (SA) through the Retirement Sum Top-up (RSTU) scheme. These funds are guaranteed by the Singapore government and offer a minimum guaranteed return of 4.0% p.a. Interest rate on Special Account increased to 4.07 percent today.

Moreover, the first $60,000 of your CPF money will earn an additional 1.0% p.a up to $20,000 in your CPF Ordinary Account (OA). Interest income. This means your top-ups can earn up to 5.0% p.a. If you top-up your CPF SA in the early years.

You get up to $8,000 in tax relief when you top-up RSTU into your CPF SA, as well as an additional $8,000 in tax relief when you cash-up into a loved one’s CPF SA. No tax relief is provided when you make voluntary contributions to your CPF account.

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However, before you do so, you should know that unlike the investments listed in this article, which can be sold or redeemed (you may lose some value when you do), topping up your CPF SA is irreversible. You will get 65 cash as monthly CPF life payment only once.

Also Read: What It Takes to Raise CPF Interest Rates Above 2.5% (for OA) and 4.0% (for SA and MA)

Savings plans offered by insurance companies, especially those that are non-participating in nature, can guarantee your capital and income. You should keep in mind that there are savings schemes that guarantee your capital but do not guarantee returns.

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When investing in a savings plan, you usually have to lock in your money for a certain period of time or contribute for a certain period of time. If you are not sure about your liquidity requirements for the funds you are investing in, you may find that you expect to get huge returns.

These plans are covered by Singapore’s Singapore Deposit Insurance Scheme and may also offer an insurance component that pays out if something unfortunate happens to you.

Also Read: Singlife Account, Dash EasyEarn, Gigantiq: Which insurance savings plan offers you higher interest rates and better benefits

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Once you build a foundation or start your investment journey, you will have more knowledge and courage to make risky investments. Risky, but still relatively safe, investments such as cash management accounts and/or corporate bonds can provide a competitive return on your excess cash while providing a high level of liquidity.

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Property Investment For Beginners: Starting Your Portfolio