Asked on 10 Feb 2020
Mid 20s, 2 years of working experience, no study debts, insurance sufficient.
Is it advisable to top up to hit OA & SA to 20k & 40k respectively or to start investing.
Ps, lets leave out splurging the money and advice on how to grow it.
100K, while not extremely big, is also no small sum of money. I'm going to assume you have your rainy day fund set aside as well, i.e. the entire 100K is available for deployment.
If you have no time bound commitments, then you'll want to invest for income. This can be via many asset classes. There are REITs, stocks, UTs, bonds and annuities amongst others. Each of these asset classes have their own pros and cons, so you will want to understand how they all work so that you can decide what works best for you. Very briefly (sorry, I can't give full details or my answer will be too long)
REITs/Stocks - Variable returns. Growth potential. Need monitoring of your individual holdings.
UT - Composed of multiple holdings. Can be equity based or fixed income based, or both. Direct management by the fund houses. Can out perform or under perform market
Bonds - Debt instruments, usually fixed coupons, and will mature at a certain point(unless perpetual). May default.
Annuities - Guaranteed payouts. May pay for a lifetime or for a number of years. Provides predictable and stable income
Naturally, you'll want to add on to your portfolio over time. The income stream from a 100K portfolio, realistically speaking, is around $4-$6K a year, which is barely enough to pay for necessities.
I won't recommend topping up to OA/SA as
You are working. You'll get to 20K/40K eventually
Cash is king. Investments may be liquidated (just need to accept their market value at that time) to raise funds for emergencies, etc
Hope that helps give you some ideas to kick start. In the end, we work for an income. So one day, we want to have an income without work. That is why you will need invest in income producing assets. However, there's nothing wrong in investing in shares purely for capital gain, but you can't pay the chicken rice uncle in Amazon shares, only with cold hard cash.
As a side note, I'll recommend you to also keep a war chest from that $100K. This can be around 20%. When market provides opportunities to buy cheaply, you'll be glad you had spare cash sitting around.
All the best!
I will probably keep some aside for a rainy day fund.
For the rest of the money, if you are not intending to use it in the near future, invest them all into a low cost global ETF. I am thinking of VT. https://investor.vanguard.com/etf/profile/VT
Do a one time investment. Don't bother dollar averaging. Reinvest all the dividends. Forget about it let it grow.
Or, you could invest all with any of the roboadvisors if you are not confident in managing your investments.
CPF is very illiquid and you cannot withdraw from it until you reach age 55. So I would advise investing.
Money today is more valuable than money in the future.
Firstly, I will set aside 3 month of salary for liquidity purpose. If you are out of job, this will last you about 6months to find a new job. The money here I will put into a high yield bank account. Note that, you will have low returns in exchange for liquidity.
Next, I will ask myself is that any need for the money for the next 2-3 years. Eg: buying a house or a car. If that is the case, I may not want to invest it as the market may not be in my favor when I need the money. For this money, I will put into a low-cost bond ETF.
Lastly, the balance of the money, I will put into the stock market. Me personally, I will trade stock directly however this is not suitable for everyone. I will look for stocks that are trending to ride the trend.
You can also use a low ETF that is tied to the SP500. SP500 automatically filter the good stocks and remove the bad ones.
Personally for me, as i already have enough savings and emergency fund saved up, i will use the 100k and to purchase stocks periodically from the stock exchange.
I like to keep things simple.
First, I would set aside 6 months of my expenses as the emergency funds.
Next, I would simply invest the rest with dividend stocks to have a monthly dividend income.
Finally, I will let these dividends accumulate to allow me to buy more dividends l stocks so that I can earn more dividends.
Assuming that I have my emergency funds set aside, and woud not need this money in the next 5 years. I would invest the money into a mix of stocks and bonds. Currently vested into 90% stocks (global / local), and 10% bonds. For a lump sum, I prefer to put in 50% in the first month and split up the remaining 50% over the next 2-3 months.
If I have that 100k, I will put aside 10k as my emergency fund (depending on your spending) , 90k for investment (100% on stocks, no bonds)
Assume that I have just started investing,
About 10k as warchest (depending on economical climate)
30-40k across etf, mutual funds, robo advisor (passive managed portfolio as my core)
(dcf for robo advisory) + low cost global etf
*As I become more confident, I will reduce my etf to 25k
Based on your risk appetite /assessment :
Growth stock : 5k - 30k (1-2 growth stocks for least risk appetite)
Income stocks : 10k - 35k (dividend play)
If I don't need to urgently use the money for 2-5 years time, maximise growth stocks.
I will not top up in my cpf at mid 20s because I would like to maximise my time frame of about 30-40 years. As long as I am confident in investing, I can gain more via investing than cpf
I would top up $7000 into my SA to take advantage of the tax incentives. I would also use $50000 to buy Singapore Saving Bond so that I could use the money subsequently for other opportunities in the future. The rest of the money will be invested in gold. I expect prices of gold to go up due to the outbreak of the Covid - 19 virus. This is my humble opinion.
I will keep $50k as emergency fund. Another $50k depends whether u need to keep for big item purchase like house and wedding. If not, I will DCA with $50k over 1 to 2 years.
If given the fact that I do not need to use this money in the short term, I will definitely add this 100k into my warchest and deploy as I deem fit. Having this is a BIG ADVANTAGE as the first 100k is the hardest to get to and you can see significant amount being compounded as well.
Oh and I defintely would not put in OA & SA as they are too restricted, you will reach them eventually.
CASH IS KING.
I will answer the question directly with asking a few questions.
How important is liquidity to you? If you cannot touch the money for 30 years, would it be a problem?
OA and SA might be advice that is dispensed frequently. However there is regulatory risk involved when it comes to the CPF monies. If you are an average Singaporean, you currently set aside 37% of your income into the CPF. Do you really need more? CPF should be a compliment, but not a core as it has liquidity issues.
Would you prefer to diversify your assets into different institutions? Or to focus into one and have concentration risk?
A good financial plan involves understanding your risk appetite and tolerance. And it should be reviewed at least once a year. What you do today might not be what you are comfortable 3-5 years from now because your situation will change.
Click here to find out more about me!
Depends. If your income bracket is high and 'forces' you to pay >11% of taxable income annually, I would say top up your SA (at least $7k) to save on taxes and then use the savings for investments. The other argument would be to max out your MA asap so you activate the spillover effect to SA then OA subsequently. All said, there are limits to how much you can contribute to CPF so call them to understand the caveats.
For the bulk of money, I would recommend reading rich by retirement book to understand why you need to invest - and then do a 3 fund strategy (following bogle's principles).
Either way you are in good stead so put the money to good use!
I think in regards to using your OA & SA to invest, I think it's good to know that like all investments there is a risk to lose your capital. If are going into investing, it's good to review your investments quarterly as if you look at it on a month on month basis, it might be too short to see how the investments are performing.
Also do note that investment is something where you need to have the discipline to invest because markets are volatile, and dollar cost averaging is one factor to consider as well in investments.
Interesting, I was in a similar situation years ago. Looking back I'd wished that I could have fast tracked my financial education. The past 10 years I've seen many financial opportunities that I passed on due to lack of funds.
As said to me by my tycoon friends, great opportunities are far and few in between, best we can do is to be ready when it happens.
My 2 cents, is to save all of it; 100k is not a lot, but if used at the right time, you can easily 10x your net worth. Save it in gold and silver, your Yusof Ishak's will be eroded by the increasingly staggering inflation over the years whilst waiting.
Start investing, preferentially with ETFs, once invested hold for at least 5-10 years
you can read how i do it here: https://seedly.sg/questions/what-is-your-general-investing-philosophy-strategy
Firstly, I will donate a part of it to charity.
Next, we need to have a complete understanding on our cashflow. Through this process, we will understand our earning ability and spending habit. Here is a guide to help you: https://www.blog.pzl.sg/understanding-your-personal-cash-flow/
Thereafter, I will conduct comprehensive financial planning to understand my life and expenses for the future. With a properly crafted plan, we will be able to determine the money that we need (thereby putting the required amount in higher guaranteed assets) and the money that we want (thereby being able to take more risk for potentially higher return).
Personally, I prefer to focus on living my life without the need to constantly monitor the market. Therefore, I will choose a well-diversified portfolio revolving around equities in the region. Furthermore, I will consider various annuities to help me build my money to cope with expenses for the long run.
With this in mind, my lifestyle is generally not affected and will improve over time as the capital continues to grow.
Here is everything about me and what I do best.