6 ways to invest and beat inflation
Did you know that money left in a savings account loses value over time?
The expected rate of inflation is about 2% per year. Meaning that in 20 years, S$100,000 will buy you less things because of the 33% loss in value. Use this calculator for a look at how inflation has affected prices in the past.
One way to beat inflation is to put your money in investments that maximise your returns, while keeping a lid on risks. Remember to invest in a diverse range of products to reduce the volatility of your portfolio.
Here are some investments to consider so your money doesn’t sit idle – or perhaps even dwindle!
Depending on your goals and risk appetite, you can choose to invest in companies with higher potential returns which may involve higher risks, or blue chip ones that tend to have lower returns but have a more stable outlook. But investing in stocks requires paying attention to the market. If you don’t have the time, consider index tracking, Exchange Traded Funds (ETFs) so you will only have to monitor the market index that mirrors the performance of a group of stocks, instead of multiple individual stocks.
There are two types of bonds: Government bonds and corporate ones. Buying bonds is essentially loaning money to the government or a company for a set number of years in exchange for regular interest payments.
Government bonds such as the Singapore Savings Bonds are considered safe options, as these may eventually generate more value through the number of interest payments you will receive over a long period of time. Corporate bonds, however, may carry a higher level of risk and would require due diligence before buying.
Bonds like the Singapore Savings Bonds can serve as a good source of rainy day savings because you may redeem them at any time with a S$2 transaction fee.
If you’re looking to diversify your portfolio with less monitoring work, leave things to the experts with Unit Trusts. The professionals will perform detailed research before deploying funds into your chosen asset class.
Another perk of Unit Trusts is that it lets you invest in a pool of stocks for a potentially lower price as compared to buying each asset individually. It is like being at a buffet while also benefiting from diversification.
Those who are tight on cash may consider investing in Unit Trusts using their CPF or Supplementary Retirement Scheme funds.
Gold has historically offered good returns and offers an alternative to hedge your investments in equities. Since it can be tough to store gold, a gold ETF is one way to invest in the precious metal. Such funds invest in gold bullion on behalf of shareholders and their share price depends on the price of gold.
Think of all those times you splurged at a shopping mall. Why not use these malls to make money for yourself instead? With Real Estate Investment Trusts (REITs), you can co-own major properties from malls to offices and hotels. Tax laws in Singapore also provide concessions to REITs that distribute at least 90% of their income as dividends. While this sounds like you may get high payouts from REITs, your investment could also lose value if real estate prices fall or when the REIT is poorly managed.
Regular Savings Plan
Such a plan lets you put a pre-determined amount of money into stocks and Unit Trusts each month. It is similar to the concept of regular savings, but the money goes into investments instead. These can start from as low as S$100 a month.
Regular Savings Plan uses an investment method called dollar-cost averaging – where your money buys more units when prices are low and fewer when prices are high – to better protect you from the volatility of stocks.
Beat inflation, starting today
Maximise your returns while keeping a lid on risks. Decided you’ll give stocks or exchange traded funds a go? Start by opening an online trading account today.