6 Ways to Protect Your Money in a Bad Singapore Market

There are ways to keep your money safe when the Singapore market looks bad. Talk to your financial advisor about trying these moves.

It’s hard to be optimistic when 2016 is off to a rocky start. From rising unemployment to turmoil caused by low oil prices, it’s a difficult time to be an investor in Singapore.

Still, there are always ways to keep your money safe, however bad it gets. Here are some solutions for you to consider:

Solution 1: Ride It Out

Do not panic just because you see your stocks falling in value, or because you hear about a coming recession. After all, you wouldn’t rush to sell your house just because you heard the property values in your neighbourhood dipped this month.

If you have a long-term financial plan, remember the current downturn will be meaningless 10 or 15 years from now. In fact, most wealth managers and financial advisors create these long-term plans for your retirement fund.

Riding out tough times may be a requisite part of the plan. Rather than panic and sell now (which means losing money, as you are selling low), it might be better to just stay calm and ride it out.

This is especially true for people with passive investments, such as ETFs and various blue chip stocks. Keep calm, ask your financial advisor if your portfolio should be rebalanced, and don’t make a panicked sell-off on your own.

Solution 2: Look to Low-Risk Bonds

When you purchase a bond, you are lending money to the bond issuer. It is a form of debt that must be repaid.

After paying the par value of the bond, you will receive interest payments (a coupon) every six months as a percentage of the value. Once the bond matures, you will receive the par value of the bond. For example:

Say you purchase a bond with a par value of S$10,000. The coupon is 3%, and it matures in 10 years. You would receive S$300 every six months (the coupon) for 10 years, or S$6,000. At the end of the 10 years, you would also receive the par value of S$10,000, so you would have S$16,000 from buying this S$10,000 bond.

The advantage of a bond is that the returns are fixed. The bond issuer--be it a company or government--must make the same repayments regardless of market conditions. This makes low risk bonds a safe investment even in difficult times.

However, you should buy bonds only from reliable governments or businesses. These are investment grade bonds, with a rating of at least AA. A financial advisor can help you find the safest bonds on the market.

Solution 3: Cash Out and Go to Fixed Deposits

If you can’t sleep because of the economic situation, it might be better to accept potential losses. As a last resort, you might want to sell off what you have, and park your money in simple fixed deposits.

This is not ideal in the long run: fixed deposits have low interest rates, often 0.8% or under. They also requires you to commit your money (you cannot withdraw the money for long periods, not without penalties), and you will indirectly lose money because the inflation rate (about 3%) is much higher than the deposit’s interest rate.

However, fixed deposits are as safe as you can get, without stuffing the money into your socks.

Solution 4: Cash In on the Misfortune

Do not try this one unless you have a high risk appetite, and the capacity to match that appetite. This is strictly for people with money to burn, and who are perfectly fine with the prospect of losing their investment.

You can try to cash in and buy stocks because prices are plummeting at the moment. If things work out (read: if you get lucky), you could stand to make a significant profit when the economy recovers, and those stocks rise to their original levels.

That’s the theory, at least. In reality, some companies may not recover, and may even go bankrupt because of the tough financial situation (in which case your shares are worthless.)

In 2008, many investors tried to cash in on the Global Financial Crisis by buying stocks that had fallen far under their usual values. Many of these investors were burned when, rather than normalising like they expected, the shares plunged even further and still haven’t recovered today.

Nonetheless, many people have made significant amounts of money in very short times, by cashing in on a crisis. You should be careful not to risk too much of your wealth this way, and discuss your stock purchases carefully with your advisor.

Solution 5: Look Toward Safe Havens Like Gold or Silver

Traditional safe havens, when economies turn sour, are precious metals like gold and silver. In fact, precious metals have an inverse correspondence to stock prices--the worse the stock market fares, the higher the value of gold or silver tends to climb (people are rushing to sell stocks and buy precious metals for safety.)

The theory is that gold and silver will maintain the value of your money as their prices will move with inflation.

However, note that this refers to buying gold bars or gold-related funds (i.e. paper gold), and not to buying large amounts of jewellery. When you buy gold from a jeweller, you are also paying for the cost of design and craftsmanship, as opposed to just buying the metal itself.

Not every financial advisor or wealth manager agrees with buying precious metals as a safety measure. Some decry gold’s safety as a myth, for example, or feel that high transaction costs and the need for insurance make it too pricey. Consult the ones you trust and heed their advice.

Solution 6: Put It Into Your CPF or SRS

The CPF is guaranteed, and you can make a voluntary CPF contribution. If you feel your money is not safe anyway, but you still want interest on it, you can elect to put it in your CPF account.

Alternatively, you can put it in your Supplementary Retirement Scheme (SRS) account. This will allow you to withdraw the money upon retirement, with a much lower tax burden.

Note that, when you put the money into your CPF account, you will not be able to withdraw it until retirement. If you put it in an SRS account, you will incur a 5% penalty on the amount withdrawn, should you try to take the money out before retirement.

Be sure you are ready to commit the money for a very long time--all the way to retirement--before you use either option.

Caveat

Everyone’s financial goals and needs will differ, and what we just discussed is a general opinion only. Some Singaporeans even get personal loans for investments. Always speak to a financial advisor or wealth manager before acting because your circumstances may require a different approach.

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