Asked on 03 Oct 2019
For basics I'm referring to:
RSP (been doing this for the last 5 years)
Insurance: Shield, Rider, critical and accident
A small amount of SGS bonds
Hi Adam. It helps to know what you are RSP-ing into, it could be UTs, or even shares/ETF. As I do not know what you have, my advice to diversify would be to consider looking at other asset classes. If you have been doing Share RSP, consider UT RSP, and vice versa. At the same time, take a look at your current portfolio that you have build, and see if there is a need to rebalance the portfolio.
To hedge investment risk, consider setting aside money monthly into a riskless product such as an annuity. The process is similar to RSP, just that the asset class is different from what you have been doing. Ultimately we want to build a portfolio that has a good mix of safe, stable assets, and some assets that are exposed to market risk in order to have an element of growth.
On the insurance aspect, if you have not had any major changes in your life, then the need to review your coverage is likely to be lower. However if there have been significant changes since you bought the policies, it would be prudent to get a second opinion. Also, in some cases, insurance premiums have come down over the years, especially on a term, so there might be a potential to retain your coverage but pay a lower premium, freeing up your cash flow to invest/save more.
For SGS bonds, they are safe, so no problem holding on to them. Just be aware of the proportion of your investment portfolio that they take up.
Based on your question, I am unable to give too specific advice due to the limited information provided. It would be helpful to know your portfolio so that more detailed advice may be given, so you may consider speaking to an independent advisor like myself to get advice on how to improve moving forward.
03 Oct 2019
Hi Adam, your question is kinda broad, but my guess you might be in the phase I went thru a couple of years ago. So broadly, even though some may recommend that you talk to a financial planner/advisor as well...
1) insurance - I only want to say check the insurance coverage of yourself and dependents (eg spouse, kids, parents). Most important is hospital / medical insurance coverage, then the rest is really up to the individual. A lot of financial advisors would be tempted to get your monies to buy more insurance. I would say get the coverage for covering risks to your comfort level and the amount you could afford. Focus on the risks to address - because nowadays some people dish out advice as though everyone needs like a couple of million in life coverage (which I feel is more for their commission than your actual needs).
2) in terms of emergency or safety reserve, then the general rule is probably 3-6 months salary. My own rule is one year for the mortgage payments, and 1/2 my annual budget for everything else. This is up to your comfort level, and level of planning. Your bank balances and SGS should serve to cover this.
3) Next is saving for goals. I think you have it broadly as your RSP - but I see this more of as a saving process than you actually knowing your goals. You will need to figure that out yourself. To help out here, some people think about their retirement, children education, financial freedom, saving for a wedding, preparing to raise kids. There are so many, and it can be daunting to come up with a perfect plan like now. To ease into the process, I would suggest you think of at least one mid-term goal (within 5 years), and a long term goal (more than 10 years). Repeat this at least once a year, so you are gradually taking steps to adjust and accommodate those goals.
4) In terms of retirement, a lot of financial advisors will be eager to start selling you various products from which they can earn hefty premiums. Some may recommend products that are good for yourself, and some good for their pockets and bad for you. I don't know if it's possible to come up with a good enough answer, but personally I take things in the "low hanging fruit order" - do RSTu to fill it up first, then srs, then if I still have funds/budget left, alternative products. A lot of advisors will rush to tell you that the annuity plan, or mutual funds, or endowment beats CPF in this or that manner... But from what I read, insurers say it is very difficult for them to beat CPF life. It definitely raises my eyebrows when an advisor tells me the product sure beat CPF such that you should take like everything you have to buy that product. Take note of what you are paying in costs for these products, and the minimum guaranteed. Because RSTU is costless + gives your tax relief, and guaranteed 4%, while the other products show you the airy-fairy numbers if they achieve so and so level of non-guaranteed returns. The premiums (usually 1.5 years of premiums are costs you will never ever recover) are however guaranteed even if they fail to achieve those illustrations they try to blow you over with. It's up to you whose word you believe because you will probably find out about the consequences, earliest a couple of mths into the plan, latest when the plan matures which it would be too late to find out it was the worse option that seriously under-delivered. The other is SRS, and quite a lot of folks asked about it. You may want to consider that as well. Don't take retirement planning as a hardcore it must be this, or that approach - explore a mix, but given RSTU and SRS gives you tax reliefs, they have quite a good start in terms of ensuring a good XIRR.
5) On RSP, there's a lot of opinions in other answers. It's hard to say who is right, who is wrong... But general principles - time in the market is more important than timing the market, keep costs low (I recommend below 1% whenever possible), and rebalancing. Personally, I just started planning my investments as though a company planning their capex - I go with 1/3 to 1/2 of my savings in RSP (cash and srs), then the balance saved in a savings goal for opportunities (ok you can call that timing the market, though I have a rule, for when to go in).
6) Investments using CPF - its an alternative and it depends on what your needs are. Hard to answer, but I will describe what I do... I try to make sure I have at least one year of mortgage payments available in CPF OA so that if I lose my job, I don't have to worry for one year. Besides, it earns the extra 1% for SA. Next, I do invest in REITs and stocks using CPF OA. My returns haven't been bad and excluding unrealized gains, the dividends are about twice of what those funds would have earned in 2.5% interest. My rule is if I can match or beat 5% return, then I can continue my CPF investments.
I can't give you much in answers, but hopefully sharing what I do gives you some room to think about what you could do.
Disclaimer for the RSP part - this is what I do, and I don't claim it's the best.... for my RSPs, I do OCBC BCIP, only one stock at a time for either portfolio. I regularly do my analysis, and I just update the monthly contribution amount, and/or choice of stock once every few months. To ensure lowest cost, I do BCIP with monthly contributions hopefully at least 500 / mth to achieve close to 1% cost. I do double DCA, if the dividend yield is too attractive, I would adjust the monthly contribution up from 500, but if the dividend yield falls below 2x 3 mth SIBOR, I would adjust my monthly contribution down. If my strategy tells me to lower RSP to below 400 / mth, I would rather cancel the RSP and wait out until prices are more favourable.
Note to other readers My financial advisor recommended I do 750 per month for an ILP for my retirement needs. The recommended fund achieved less than 2% (before fees) in one-year returns, and the three-year return is going south of 10% every passing month. My DIY investing achieved more than 18% (inclusive of fees), and the three-year return is probably close to 12+% (fees and costs inclusive). My point is actually the funds that the advisors may push may not be that actually good for you, but it is usually good for their own pockets.
I say you have a good conservative portfolio.
Get a small amount of cash and start buying stocks directly!
(I say small amount because many people may not be able to read up well and get emotional in choose stocks they like)
stock buying is important but neglected. Its okay to ignore this if you have no risk appetite and prefer everything via ETF (or unit trusts if you don't mind higher fees).
It is good to have some stock experience though ;) this small risk i feel can helps improve financial understanding.
04 Oct 2019
Adam Tan Based on my current market value.
Sgx-50% this is because it was one of the first two stocks I bought
Sats-8% currently accumulating
Capitamall trust-28% this is because it was one of the first two stocks I bought
Ascott reit-3% currently accumulating
Would you guys consider the insurance bought as investments or savings if we stay healthy enough and don’t use it? Or would you just take it as an emergency fund and if you get returns from it, great.
Because I did an estimation on monthly expenses or insurances for my family and myself with all automatic payments and other family expenses it comes up to about 50% of my salary and the RSP is only about 15% and the small amount set aside is about 6%. The balance is used for my own personal expenses.
05 Oct 2019
Seems like you had it well planned. I am going to adopt from Seedly Money Framework .
Firstly, you may want to review your finances (income, expenses, debts etc.) to see how much buffer / investable money you have.
Next start learning one asset class. If you are not sure what asset there are you can read the different types here. Personally I would suggest you try and familiarise with EIP ETFs, retail bonds (read/ study past offering documents) or blue chips stocks.
Then look at how you can diversify your portfolio in terms of asset classes and the country/region eg. EIP ETFs do offer some exposure to the Asia Pacific, EU, NA countries.
Then you may consider other classes eg. REITS, penny stocks etc. You may also wish to find out more from the Seedly Personal Finance Festival Highlights for some tips.
Apart from investing you may also want to consider omptimizing your CPF accounts if you are local, personally I try to top up my family Medisave accounts when I can.
Importantly- please do your due diligence.
03 Oct 2019