Singapore is one of the most expensive countries to live in with a high standard of living and sky high prices for properties and cars. Thus, it is little wonder that Singaoreans are constantly looking for ways to grow their wealth to keep up with the cost of living. In today’s article, we take a look at some things we do to increase our wealth.
Top up our Central Provident Fund (CPF) Special Account (SA)
The CPF is a mandatory social security savings scheme funded by contributions from employers and employees. The contributions goes into 3 accounts - Ordinary Account (OA), Special Account (SA) and MediSave Account.
The CPF SA is primarily for retirement needs and earns an interest rate of 4% compared with 2.5% for the OA. In addition, there is an additional 1% in interest for the first S$60,000 of your combined CPF balances.
One way of increasing your wealth is to make cash top-ups or CPF transfers to SA. Besides benefiting from compounding interest and higher monthly payouts when you retire, you can enjoy tax relief at the same time. The returns you get from the CPF accounts are risk free as CPF monies are guaranteed by the Singapore government. You are assured that your CPF savings are safe regardless of financial market conditions. In addition, by making cash top-ups to your own or your loved ones’ CPF account, you can get up to $14,000 in income tax relief per year.
Apply for a Build-To-Order (BTO) flat or Executive Condominium (EC)
Property prices in Singapore tend to appreciate rather than depreciate especially if you bought at the right time and the right location. BTO flats are bought directly from the HDB at subsidized prices. Buying a BTO flat comes with restrictions such as citizenship, income ceiling limit etc and is not for everybody and anybody.
However, as the prices are subsidized, once the flat reaches Minimum Occupation Period (MOP) status, chances are the value would have appreciated to match the market and in the process, increasing your wealth.
For those who exceeded the income ceiling for BTO flats, fret not, you can buy an executive condominium (EC) directly from the developer. ECs are a hybrid of public and private housing as they are full suite condos with complete facilities and amenities such as swimming pools, clubhouse, tennis courts, playgrounds etc. Although they are built and sold by private developers, the cost is slightly lower than private condos because their land prices are subsidized by the Government.
ECs are also subject to HDB public housing regulations such as household income ceiling and MOP. If we look at the trends of past ECs launched, the value of the property usually appreciated quite significantly after the MOP.
Buyers of either a BTO flat or an EC can also get CPF housing grants, subject to household income. Households with a lower combined monthly income will be eligible for higher grant amounts.
Real Estate Investment Trusts (REITs)
If you are already a property owner and you do not want to incur ABSD for buying a subsequent property, you can also invest in REITs. REITs are a type of professionally managed collective investment scheme which acquires, owns and finances income-generating real estate.
REITs are managed by property professionals and they earn income from renting out the properties in their portfolio, which is then given to the investors in the form of dividends. REITs are required to distribute a minimum of 90% of earnings, thus providing a regular income stream. In addition, there is also the opportunity for capital appreciation when the value of the REITs goes up. There are currently more than 40 REITS listed on the SIngapore Stock Exchange and they include big names such as CapitaLand Ascendas Reit, Mapletree Logistics Trust, CDL Hospitality Trust and Frasers Hospitality Trust.
Another advantage of investing in REITs instead of a physical property is liquidity. It is easier to buy and sell a share in the REIT than to buy and sell a physical property which may take months and the cost involved is very much lower.
Endowment plans are a form of savings cum insurance investment product with short to medium term tenures. With interest rates climbing up steadily to 3% and above, this would be a good time to invest in one.
It is also relatively safe as most endowment plans come with a capital guaranteed clause upon maturity. So if you do not terminate the endowment policy before maturity date, you are guaranteed to take back what you have invested plus the interest.
Banks and insurance companies have recently launched many short term plans ranging from two years to 5 years with a low entry amount of $5,000. This is definitely an easy way to grow your money without it being tied down for a long period of time. One big plus is that in the unfortunate event when you suffer permanent disability or even death, the endowment plan will provide a pay-out to your beneficiaries.
Fixed or Term Deposits (FD)
As per endowment plans, another option would be fixed deposit accounts or term deposits. FDs are low-risk investment options and with the rising interest rates, you can get quite an attractive ROI. Most banks’ savings accounts pay an interest rate of 0.05% pa. That is ridiculously low compared to the current FD interest rates. Some banks are currently offering interest rates of more than 3.5% for FDs over a tenure of 12 to 15 months.
A fixed deposit or term deposit is the most stable investment option in today's investment market as the interest rate is locked in for the period you signed up and does not go down even if the market and economic conditions are not ideal. If the interest rates hold up, these are short term investment options that can be renewed after the tenure is up and you can continue to enjoy higher returns than a savings account.
The above mentioned are just some ways you can make your money grow with very little risk. Of course there are many other investment options that can provide higher returns but that comes with high risk. As with all matters that concern money and our wealth, it is necessary to do your due diligence and not jump in blindly or commit based on rumors. As the old saying goes - it is better to be safe than sorry.