Sunday, July 8, 2012

Query from Reader - $20K to Invest

I don't usually do this but I got a query from a reader recently asking me what safe instruments one could invest in that will provide a better return than fixed deposits (FD).  Based on the sketchy information provided, here are the following facts that I got from the very brief email:

  •  $20K cash
  • "Invest on something safe"
  • Earn more than FD (which I assume stands for fixed deposits).
Firstly, I think the reader must ask himself whether the $20K in cash is really spare cash.  Has he/she set up an emergency fund of 6 months expenditure (or for the kiasu ones - 6 months income).  Without questioning too much, I assume that he/she has already set aside money for an emergency fund and this is really SPARE cash to invest.

Secondly, I deduce that the reader is probably risk adverse.  Capital protection is probably key to him/her.  Stocks with their high volatility are perhaps not suited for everyone (even though I strongly recommend it to most people).  

One of the few options I can think of is to invest in SGS bonds.  That will give a better return than FD.  However, at the same time, the returns from bonds are not spectacular at all (at least to me).  Personally, I don't invest much in bonds (not directly anyway).  

Any thoughts from other readers?


  1. For newbie, before investing, get themselves educated in some basic investment theory and knowledge.

  2. Careful now.

    Why introduce something you have no first hand experience in and/or personal conviction to someone (lots of assumptions) you hardly knew?

    Sometimes the best answer is not an answer but a question or a hint to encourage that person to do what CW8888 has suggested ;)

    1. Agreed with SMOL. Sometimes the best answer is not an answer!

      We are not licence investment advisor so better don't offer any investment advice it is illegal to do so. We can only share our own personal investment experience.

      We should also be extra careful not to write any convincing blog posts that may induce others to buy or sell. When some people lost too much money and they believe that they are mislead by our posts, they may become sibei buay song. They may come and f.. us.

      In Hokkien, “Kiang tio ho, mai kay kiang (It is enough to be smart, but don’t act TOO smart).

  3. Hi,

    I myself is a licensed financial planner so if I may, let me share a little bit of my own opinions.
    I personally feels that the options are pretty little, which could be ranging from investing into a diversified set of portfolios, to getting a cheap endowment plan and investing into bonds to leverage the risk.
    20k is a comfortable sum to do all that, so I guess it really boils down to how much this guy wants out of it. What do you guys think?

  4. Hi SMOL/CW8888,

    Thanks for the warnings again. Indeed, it is true that sometimes, we ought not to provide the answers and a question might be much more appropriate. At the same time, I think it can be quite perplexing for newbies who have never been exposed to the world of investing to navigate the entire process themselves. They can read all the books they want but unfortunately, many of the books are "western" in nature and might not apply to the Singapore context well.

    Sometimes, just stirring discussions and sharing with one another our past mistakes/lessons/battles might be worth more than reading a book.

    I think 20K is a start but more importantly, it is regular saving/investing that will work.

  5. For a risk adverse person, with $20k to invest in safe instrument, my opinion is to put it into TEF/TEP with at least 90% guarantee, and getting 4-8% return annually and you can compound it over 5-10 years.

  6. Ya. Too few investment books written for Singapore market. :-(

  7. Assuming the reader has put aside emergency funds, I would ask what is the time horizon he is looking at. With a medium (4-5 years) horizon, I would recommend buying REITS. They give anywhere from 4-10% yield p.a. And because they are backed by real estate assets, they will not collapse to zero like normal shares could.

  8. I disagree with Anonymous that for a risk adverse person, REITs may be defensive in nature, but it is still risky and may end up in depression or total loss. During financial stress, as shown during 2008-2009, Saizen Reits pays out nothing while having default on its property and refinancing issues, IPIT (indian bulls) has NEVER pay out anything for a REITs listed in Spore since 2008 (don't understand why SGX allows such rotten REIT into Spore), AimsAMP reits (previously MI-REITS) almost end up having to sell and liquidate its assets, if the shareholders had not voted narrowly to approved the new shareholder for the recapitalisation exercises, as it was almost in default and having refinacing issues.
    So the best but little known strategy for risk adverse person will still be TEP/TEF since the timeline can be between 4-10 years, while the captial is at least 90% guarantee, and interest is compounded.

    As for investment books, a simple and easy to understand is by Dennis Ng called "What your school never taught you about money" or his 1st two books as well.

  9. I think REITs is not really for risk adverse people. Actually, I think there is no good way to classify how risk adverse a person is. Most questionaires are probably not that accurate.

    I believe as a person finds out more and more about investments, one's appetite for risk will also increase accordingly. I guess it is a bit of "no longer fearing the unknown". Whether that is good or bad I will leave it up to readers to decide.


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