What should my next step in investment be? - Seedly
 

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Asked by Anonymous

Asked on 12 Jul 2019

What should my next step in investment be?

Hi, i am a 28YO freelancer + tiny business owner. As there is a lack of CPF contribution due to the nature of work, i've just started to read about investment and trying to cover the shortfall. So far i've got -20k in SSB -10k in SIA Bonds -5k in Astrea V -10k in autowealth (trying to put in 200 per month) My question is, what should my next step be? I'm actually looking at REITs but not very sure how to go about. Appreciate all types of advice and help. Thank you!

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I'd suggest building your own CPF. I tell my self-employed friends the same thing as well. For your more aggressive exposure, invest in your business and yourself.

But because you lose out on the guaranteed-ness of CPF, build that for yourself by either contributing yourself, or if you want more flexibility, use insurance products like endowments and annuities.

You've started on that by buying bonds, but they don't provide compounded return, and you may have little use for the coupons, I'd rather go for a compounded guaranteed return.

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You should definitely look at contributing to your CPF. You can target contributing to your Special Account through the Retirement Sum Topping Up Scheme which would grant you tax relief as well as help to compound your retirement savings. This assumes you are comfortable with having your monies locked in CPF for a long time as it is largely a one way traffic. This forms the core of your guaranteed retirement funds and you can supplement it with annuities at the same time.

Your allocation is largely on fixed income and it would be definitely advantageous to have a little more equity exposure, hence I can see why you have thought about investing in REITs. However you might want to keep your funds liquid first as equity investing will require a fair bit of research into the company, to see if you are OK with the risks as well as the business. Even if you find a company/REIT to invest in, the price might be too high and I don't recommend overpaying for a stock. Patience does get rewarded but it is the waiting game that really tests you, as it is never easy to sit on money and do nothing.

Ultimately the best investment you can make is in yourself and your business. The returns will be more tangible and can grow faster than the average stock. With more funds available from a thriving business, you will have more bullets to fire when opportunities present themselves.

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If you are looking at reits, I will highly recommend that you read the book building wealth through reits. Reits are great to have in one’s portfolio in my opinion.

If you are not contributing to your OA and SA, You may want to consider contributing it. The returns are very decent and you don’t have to worry about management; just got to be aware to the changes in regulations regarding it.

Also consider your desired returns, etc. This will help you to create your portfolio and investment strategy.

Right now looking at your portfolio allocation, bonds are taking a huge part of your portfolio, if that

Is your desired portfolio stick with that, if not you may want to look at it and rebalance accordingly

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Loh Tat Tian
Loh Tat Tian, Complex Manager at Ocean Ifm Pte Ltd
Level 8. Wizard
Updated on 18 Jul 2019

Congrats on being successful enough to earn a living.

Maybe we tackle 1 by 1 first. When you say you lack CPF contribution, that can be easily done by contributing to it under Vountary contribution to Medisave Account (MA) only (to fulfill the yearly Medisave contribution). Doing this allows some Leeway when you hit 55 years old.

(1) this allows you to overflow your Medisave Account to Special Account, whereby not losing any interest of 4-5% compared to voluntary contribution to 3 accounts.

(2) Your tax relief is still deductible (until you hit Basic Healthcare Sum). Then you have to change your strategy to do Voluntary contribution to 3 accounts instead.

(3) This is better than RSTU (retirement sum topping up scheme) because you cannot opt for BRS (basic retirement sum) if you done RSTU instead.

For investment, seeing that you are investing in your business already (high risk), you seem to gravitate towards more safe instruments which provide income (and may be a form of increasing your cashflow). From a business owner, this is prudent because you want liquidity, or at least some gauranteed cashflow so that your business can stay afloat in any event. Once its stable, you may gravitate towards riskier investment. But i think this is up to you since you know your situation best.

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Eric Chia
Eric Chia, Senior Financial Consultant at Prudential
Level 6. Master
Answered on 14 Jul 2019

Hi there, before giving any advice and suggestions, can understand what you mean by covering the shortfall?

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Jefremy Juari
Jefremy Juari, Financial Writer at Medina Books
Level 4. Prodigy
Answered on 13 Jul 2019

Congratulations on starting your own business. As a 28 YO, I believe that you should be intensifying your investments, not diluting and diversifying. Focus on assets with regular payouts and potential for capital gain. Also reinvest in your business and plot out your exit strategy, since you already have the experience, business building and assets should be your focus in my humble opinion.

There is no such thing as 100% passive income, if it is, it's a con. If inflation is 3% to 10% how does a 2% interest bearing instrument make sense?

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Milly Fbk
Milly Fbk
Level 4. Prodigy
Answered on 13 Jul 2019

Hi, you're a business owner so in my opinion, nothing makes more then to invest in your own business.

But if you wish for some passive side investments, well, do as what everyone is doing.

Do some stocks, bonds, unit trust, P2P lending.

From your information, I see that you can benefit from SRS, and you can use that as reduce your tax and also invest.

Also, do look into CPF top up, especially for your retirement like what Leong is saying.

Also, I am assuming you have yet to consolidate your strategy above.

You can get a DBS multiplier account. The SSB counts as the investment option and I'm sure you can arrange for a credit card as well.

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Leong Wen Fong
Leong Wen Fong
Level 7. Grand Master
Answered on 12 Jul 2019

If you are not sure on how to do it, but want to get into it, then the obvious next step is to invest in your knowledge about it first. Take up some classes about investing, learn about what your risk appetite is, and make an informed decision from there! From your previous investments, it would seem that you are more risk adverse, and dont have a lot of knowledge, so I think ETFs are the way to go for now!

If not, I think that you might want to consider putting some into your CPF SA, that being more focused on retirement funding, and for an almost risk free investment, 4% is quite a huge amount of returns!

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