Singapore Saving Bonds (SSB)
Asked on 01 Apr 2019
Default risk of the government.
Reinvestment risk upon maturity of the bond. You may not get the same interest rates when the bond matures and you get back your capital.
And other than that, just the low yield it gives barely beats inflation.
While Singapore Savings Bonds are very safe since it is backed by the government, there exists risks factors such as inflation risk.
At the current state, it yields less than 2% upon maturity. Accordingly, the key question is, is the rate of return higher than the rate of inflation? If not, our money is still being eroded away by inflation. Therefore, investing in Singapore Savings Bonds will not be a good investment.
Next, there is an opportunity cost associated with every investment. By putting our money into Singapore Savings Bonds, our money in locked for the next 10 years in order to earn a decent yield. However, if a better opportunity arise, we won't be able to cash in and channel our money into a better tool. As a result, we will be forced to forgo the better investment.
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28 Dec 2019
28 Dec 2019
Over-concentration risk, esp for risk-adverse individuals, who really use SSB as a main investment component instead of a safe haven for emergency funds
To me it's mainly the opportunity cost of more interest if that money had been invested elsewhere with higher returns (assuming the govt-backed principal is relatively safe). But higher returns also tend to come with higher risk. So to take another perspective, if comparing SSB with itself (same level of risk), the risk then would be whether the SSB interest rate increases say the month after you put your money in. Seedly has come up with an interesting article addressing that recently.
Another risk you would be taking, besides the potential loss in higher returns is whether you would need that money before it matures. This may be obvious to some,, but basically the cost of this would be the $2 admin fee for withdrawing the money early and the lower interest yield (since you only get the max promised return if the amount is held to maturity).
It’s indeed very safe but the 2 main risks to it are
If somehow our government / MAS collapses.
Opportunity Cost, it takes a month to withdraw whatever money you put into. If a good opportunity comes by and your money is tied in it. you might lose a good opportunity to gain a better investment.