I have 700k in cash savings, how should I invest?

Hi Ray,

There's no right or wrong answer on how to invest, but a key thing to note would be ensuring that the investments will fit your goals and objectives.

To address your extended post: Firstly, understand your options. There are places where you can purchase mutual funds without any sales charge, which would maximise your return straight away. With the profileration of 0% sales charge platforms, I never recommend buying mutual funds from banks, as you will be on your own to manage after that, so what value is there in the sales charge?

I can understand the desire for people to explore property investment, but yes, you are right to be wary because no matter what happens, property is a leveraged investment (for most) and things can really turn nasty if your income or the economy takes a hit and you and your family end up over-extending yourselves.

I have seen some colleagues from my previous job who bought into property in JB and have not really seen any capital appreciation. They are also struggling to find a tenant and have to pay off the mortgage. A tale of caution, perhaps.

I feel that something you can focus on is to get sustainable income, whether it is from your own job, or other asssets. Income is the key to opening options for you, so that if things get a little dicey, you will have income streams to tide you by. There are a number of income options out there, but they are segregated largely into guaranteed and variable. Guaranteed income would comprise of things such as CPF or annuities, and variable income can come from mutual funds, shares, ETFs, and property, etc.

Focus on building an income stream independent of your job, and independent of your property. Even if you are very keen to explore property investments, I would suggest that you can take a portion of your cash savings (how much is up to you) to build an income stream from a mixture of asset classes. Yes, it would mean your maximum downpayment for an investment property would be lower, but it is always better to have a margin of safety for yourself. If anything happens, the consequences are on you. This way, should your property investment take a hit due to unforseen circumstances, you will still have relatively safer income streams coming in.

I know of someone who did property investing, and his tenant vacated the place overnight. He has the security deposit as a buffer, but he's now back in the hunt for a new tenant again. These things can and will happen, but the person has diversified income streams beyond his investment property so he did not take a big hit.

Again, I stress to tread with caution. Wonderful tales of massive capital gains and decent rental income are common, but when the tide goes out, we will know who was swimming naked.

Feel free to reply to this post if you have further questions.

Before you start investing, it will be best to understand your objective. Here are some questions to help you:

1. What is your capital? In your case, $700k

2. How will you want to invest your capital? E.g. lump sum or an amount on a regular basis

3. How long will you want to stay invested? E.g. 10 years

4. What is your risk appetite? E.g. How do you feel about short-term volatility?

5. What is your objective for investing?

Property investment works if and only if you clearly understand the market, and has sufficient liquidity to withstand the market downturn. Of course in the ideal case, everyone wants to earn from it (like what you mentioned). But what happens if the market is not doing as well as it should be? Will your cashflow be able to sustain the property and its associated cost? And what if the government makes changes in its policy again?

If you are looking at mimicking the returns from investing in a property, then you may wish to consider alternative options such as a lifetime annuity. Not only does it provide guaranteed step-up coupons monthly (similar to rental income), it is also tax-free.

Either way, take your time to explore more options before you make a decision.