Beat inflation with these investment hedges

Investing in inflation hedges in Singapore

Left uninvested and at the current rate of 2% inflation in Singapore, your money will lose 25.99% of its value in 20 years – from S$100,000 to S$74,008.

A good way to hedge against inflation is to build a stable investment portfolio that maximises returns while keeping risks under control. It is important to diversify, so you reduce the volatility of your portfolio.

 

Hedging against inflation in Singapore

Here are some investments to build your portfolio and beat inflation.

By investing in Singapore Savings Bonds

Government bonds such as Singapore Savings Bonds (SSBs) can be a good option.

Returns are the lowest in Year 1 and reach their peak by Year 10. For example, buying SSBs in February 2022 and holding it till maturity would earn you a return of 0.52% to 1.79%. Selling the bond before 10 years would earn you less.

SSB interest rates have been edging up amidst expectations of rising global interest rates. Watch out for the Monetary Authority of Singapore’s SSB interest rate announcement at the beginning of each month.

Interest rates of February 2022 SSB

Year from issue date

1

2

3

4

5

6

7

8

9

10

Interest, %

0.59

1.35

1.72

1.98

2.06

2.06

2.06

2.06

2.06

2.18

Average return per year, %*

0.59

0.97

1.22

1.40

1.53

1.61

1.67

1.72

1.75

1.79

*At the end of each year, on a compounded basis

By investing in corporate bonds

Corporate bonds are another option to hedge against inflation.

Where available, credit ratings are guides to credit quality. The higher the credit rating, the stronger the financial standing of the bond issuer in the eyes of the ratings agency. Different credit ratings agencies use different ratings system.

A widely followed agency, Standard & Poor’s, uses the following system:

S&P credit ratings system

However, an unrated bond does not mean that the issuer is of poor financial standing. In some cases, the issuing company is so confident that its bonds will sell on the company’s brand name or reputation and does not want to put resources towards getting a credit rating.

In such an instance, unless you are able to assess the non-rated issuer’s balance sheet, earnings, cash flow situation and outlook yourself, you are taking on the risk of lending only on the basis of reputation, which may or may not be indicative of actual credit quality.

By investing in stocks

Company stocks can be a good long-term investment alternative. Stock prices of large and medium-sized companies in developed markets grew by an average of 12.15% over the past 10 years, based on the MSCI World Index. This is higher than Singapore’s current rate of inflation.

MSCI World Index

Stock prices of large and medium-sized companies in developed markets over the past 10 years, based on the MSCI World Index.

Data source: MSCI, as of 31 Jan 2022

When investing in stocks, don't make a purchase simply because of a friend’s recommendation. Take these recommendations as a good starting point to do your own research to understand the intricacies of the company, industry, and environment. Leverage on advanced charting tools and personalised investment ideas to select an investment that suits your palate and investment strategy.

By investing in equity funds and bond funds

Funds, which are also known as unit trusts, can help you make gains from the stock market when the market moves up, while minimising your risks. With the variety of funds available, it is possible to select one that matches your risk profile and investment strategy.

Fund managers with a deep professional understanding of the markets will conduct detailed research – time and resources that an individual investor may not have – before deploying your funds in your chosen asset class. Your fund manager ensures the fund is performing well against the market’s performance, which is a way to beat inflation.

By investing in commodities

Buying commodities is a way to hedge your investments in equities and bonds, and enabling you to participate in the world’s economy.

Instead of buying the actual material, you can purchase a commodity exchange-traded fund (ETF), unit trust, or gold-linked note (GLN) which invest in gold bullion, silver, or oil, natural gases and other commodities on your behalf.

An increase in the price of the commodity will lead to a rise in the ETF's share price. Of course, commodity prices are difficult to predict and commodity ETFs carry their own share of risks.

By investing in REITs

REIT is an acronym for "real estate investment trust". S-REITs are REITs that are traded on the Singapore exchange. They pool investors' capital and buy commercial, residential or industrial properties.

REITs collect rent on the properties that they own and pay a dividend to their unitholders from these funds. If property prices rise, your units will appreciate. This a good strategy to help you catch-up with inflation. Learn more about its appeal.

Beat inflation with confidence

Stay ahead of inflation with relevant insights. Guidance from our Chief Investment Office (CIO) and Chief Economist underpins all the insights, analyses and advice you get from us.

At the same time, tap on digital intelligence that works behind the scenes to make sure you see what you need to see, so there’s less time wasted sifting through research and reports.

Make investment decisions with confidence, knowing you’re getting advice that’s right for you.

Get in touch to accelerate your wealth with DBS Treasures

Or harness the latest market insights by our CIO and Chief Economist

Disclaimer for Investment Products.

Disclaimers and Important Notices

This article is for information only and should not be relied upon as financial advice. Any views, opinions or recommendation expressed in this article does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability. This article is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation.

Thank you. Your feedback will help us serve you better.

Was this information useful?

That's great to hear. Anything you'd like to add?
We're sorry to hear that. How can we do better?
Enter only letters, numbers or @!$-(),.