Constantly hearing that SSB is a very safe investment, what are some of the risks of investing in SSB? - Seedly
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Singapore Saving Bonds (SSB)

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Anonymous

Asked on 01 Apr 2019

Constantly hearing that SSB is a very safe investment, what are some of the risks of investing in SSB?

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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.

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Ninja

28 Dec 2019

Yeah sg government default rate is 0.0000000001%
IC

29 Dec 2019

This is wrong understanding of "reinvestment risk"..

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.

Here is everything about me and what I do best.

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Ninja

28 Dec 2019

Lol expecting that answer. We should use endowment plan or ilp.
Pang Zhe Liang
Pang Zhe Liang

28 Dec 2019

Endowment and/or investment-linked policies are two of the available tools to help you achieve your financial goals. However, there are many other available tools in the market that does the job well. Therefore, it depends on your needs and how we can identify the right tool to help you reach your goal in the most effective and efficient manner.
Wilson Nid A Break
Wilson Nid A Break
Level 8. Wizard
Answered on 27 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

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K
Kaykay
Level 4. Prodigy
Answered on 27 Dec 2019

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).

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Gibson Junxun
Gibson Junxun
Level 4. Prodigy
Answered on 01 Apr 2019

It’s indeed very safe but the 2 main risks to it are

  1. If somehow our government / MAS collapses.

  2. 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.

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