Based on your age group, here's a guide to help you invest your money effectively
-- PHOTO: ISTOCKPHOTO
When stock markets rallied dramatically last year, soon after the financial crisis, it was mainly the bold and the brave who leapt right in.
Many others were wary. Was this a false dawn, only to be followed by more market mayhem? They were reasonable fears, given the prognostications of so-called experts.
But now that the market rebound is proving resilient, many more investors have regained their confidence and are keen to take their chances.
A recent nationwide survey by Citibank on the financial well- being and attitudes of Singaporeans showed that consumers are looking for higher returns and ways to better build their wealth, though it did indicate that there is also greater caution now.
A total of 44 per cent of respondents stopped investing during the crisis, but have either resumed investing or are open to doing so once the right opportunity arises.
A further 36 per cent said they stayed invested throughout. The rest, about 20 per cent, continue to prefer holding their savings in cash or something similar.
One plus is that the survey found that the majority of Singaporeans are not relying on their Central Provident Fund (CPF) savings as their only source of retirement income. About 73 per cent of respondents believe CPF will provide 'only some' or 'very little' of their retirement income.
Still, consumers can do plenty to whip their financial affairs into order. Alarmingly, about half or 52 per cent were not sure how much they would need for their golden years but had started saving.
Another 26 per cent had no idea or had not started planning. Only 22 per cent believed they knew how much retirement savings they should need and were on track to achieve their goals.
The start of the year is an opportune time to reassess the impact of the financial turmoil on your portfolio, learn from mistakes and re-work your investment strategy.
If you are doing just that, here is what the experts recommend for investors:
AGE GROUP
20- 40
For these investors, time is generally on your side as your investment horizon should easily be more than 10 years, so you can afford to ride the market ups and downs, unlike some older investors.
That means you can afford to put more of your eggs into riskier assets such as equities, as opposed to safer options such as bonds, said financial experts.
Mr Ben Fok, chief executive of Grandtag Financial Consultancy, said that after ensuring you have set aside emergency cash reserves, you should invest 80 per cent to 100 per cent in equities for wealth accumulation and place up to 20 per cent in safer bonds.
Mr Albert Lam, investment director of IPP Financial Advisers, believes that growth this year will be moderate and that equities are likely to continue to do well.
'The massive liquidity in the system and the fact that many investors may have missed out in the 2009 recovery will likely support market corrections that come along,' he said.
He also likes funds that are invested in Asia and emerging markets for their growth in terms of economic fundamentals and the potential for homegrown spending to outpace that of the troubled developed economies.
Another tip is to consider re-investing any dividends and payouts that come your way, rather than spending them. After all, the compounding effect of capital is powerful.
Investors are also reminded by Ms Anne Tay, OCBC Bank's vice- president, group wealth management, to protect their current assets by ensuring they have appropriate insurance protection to hedge against their liabilities, such as home loans.
AGE GROUP
41 - 59
If you are employed, Ms Tay advises you to keep working. After a review of your portfolio, you may need to re-organise your affairs and set new financial priorities.
Mr Fok feels that the risk outlook for this group of investors, particularly those nearing 55, should be moderate as retirement is not far away. Besides, you are likely to have school-age children entering the tertiary phase of their education so you would need cash, said Mr Lam.
With this in mind, you are likely to be shifting your investment mix towards a balanced portfolio.
A suggested asset allocation would be 30 per cent to 50 per cent fixed income and 50 per cent to 70 per cent equities exposure. They also need to think of creating an income stream when they are in retirement, said Mr Fok.
Investors who took a beating in the crisis should stay invested to recover their losses, said Mr Lam. However, as these investors approach the maturity of the investment timeline, it is important to move towards safer assets. This might occur about three years from retirement or when they need the cash to fulfil an objective.
Another tip comes from Ms Yash Mishra, head of private client advisory services at ipac financial planning Singapore. 'Watch your spending and start reducing your debt,' she cautioned.
AGE GROUP
60and above
If you have not done so, it is time to reassess your retirement nest egg by determining your sources of retirement funds, said Ms Tay. Re-examine how long the funds would last you and take actions such as lowering your cost of living. This means you will have to eat less into your retirement portfolio every month.
Mr Fok suggests that as part of retirement planning, you should work towards creating an income stream for when you retire. This includes seeking part-time jobs and downsizing your home or renting out one of the rooms at your existing home to supplement your income, said Ms Tay.
Capital preservation is key for this age group. One tip is to move some of your assets into high interest or dividend bearing instruments for income. A recommended portfolio mix is 20 per cent to 30 per cent in equities and 70 per cent to 80 per cent in fixed income, advised Mr Fok.
Ms Mishra reminds those in this age bracket to keep aside at least three years' living expenses in cash.
'Keep track of your expenses to make sure you are not living beyond your means. And ensure you have adequate medical cover,' she advised.
At the end of the day, a retiree's investment mix would be determined by his personal situation. For instance, a rich retiree who has already built up his retirement nest egg can probably afford to take on more risk and have a higher equity allocation. But a retiree with only enough money to get by cannot afford any losses and needs to be more conservative, said Mr Lam.
Annuities provided by private companies or the CPF Board may also be instruments which a person above 60 can consider.
Get started
Consumers can do plenty to whip their financial affairs into order. The start of the year is an opportune time to reassess the impact of the financial turmoil on your portfolio, learn from mistakes and re-work your investment strategy.
Source: Straits Times, 17 Jan 2010.
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