Date: April 11, 2017
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Every year you put off investing makes your ultimate goals of retirement more difficult to accomplish. As a rule of thumb, for every five years you wait, you will need to double your monthly investments to achieve the same income to meet your retirement needs. Just relying on your CPF alone will not be enough for many individuals.
Know yourself
Try to meet up with a financial or investment planner to assess your financial objectives as well as your tolerance for risks, so that you can create a portfolio of investment that is suitable for you.
Invest for growth
The biggest mistakes that many individuals make is to ignore investing in stocks or unit trusts and rely on safe investment vehicles such as fixed interest deposits. These instruments can usually only perform marginally above inflation rates. Stocks, on the other hand, while they are volatile have historically outperformed most type of investments, and have the advantage of staying ahead of inflation. But if you are averse to participating directly in the stocks markets, then unit trusts can offer a good alternative of staying invested in the stock market.
Always have a long-term view
Be patient. Maintain the discipline of staying invested. If possible, top up your portfolio even in times when markets are down — some of the best returns in many fund portfolios actually come from investments made when the markets are down. You may want to have a systematic investment plan which includes dollar-cost averaging or value averaging techniques.
Build a diversified portfolio
Inexperienced investors often make the mistake of putting all their eggs into a single basket of investment assets like stocks or fixed deposits. You will need to spread your risks in a wider range of investments such as bonds, stocks and/or unit trusts to ensure that you are protected from market and interest rates fluctuations as well as changes in the economic environment. Try to find an asset allocation model that can help you decide, and be sure to review it from time to time with your investment or financial planner.
Be a lifelong investor
Don’t assume that your savings in a bank or a mortgage will take care of itself in the long run. For example, the one-year fixed deposit you have put your money in at 4% may not be earning enough returns for you, if real interest rates rise to 6% in the 12-month period you have invested. The same with your mortgage, you may want to shop around or ask your financial planner about refinancing and the possibility of switching to a cheaper loan that can save you thousands of dollars each year for the duration of the loan. And even if you retire, you should stay invested. Don’t just shift all your CPF savings immediately into a fixed income investment and wait for your interest payments. Look instead for ways to maximise your returns with an asset allocation model that will suit your lifestyle and needs. You may also want to ask about annuities as an alternative form of investment.
