Why Should Expats Invest In Singapore?

This question often comes up a lot. A lot of expats don’t even know if they can invest in Singapore, let alone if they should. Locals and PRs are automatically enrolled into CPF, which they can use to pay for medical, housing and have money set aside for retirement. Because us expats do not have access to this, I would encourage expats to start setting aside money for these areas; we already know how expensive medical can be (which can be tackled with insurance), and buying property is costly wherever you are, and we all need to set aside for when we retire (the earlier the better!) Investing helps to beat the rising cost of goods and services; you can usually estimate inflation at 2%, so in order to make sure your cash doesn’t lose buying power, you need to beat this rate. With a current account in Singapore gaining interest of 0.05%, you’re actually losing money by keeping it there.

But why invest in Singapore if we’re not from here? I’m going to list a few reasons why expats should invest in Singapore.

Singapore As A Business Hub

Singapore joined the ASEAN Economic Community on the very last day of 2015, and since then investors and business people alike have viewed Singapore as a safe and efficient entry point into South East Asia. Not only is our geographical location very advantageous, our technology and infrastructure is highly advanced in comparison to neighbouring countries. It is the world’s busiest port and a top location for investments in the Asia Pacific region. Singapore is often number 1 in many business surveys:

  • #1 Best business environment in the Asia Pacific and the world: Business Environment Rankings (BER) 2019, The Economist Intelligence Unit
  • #1 in the Asia Pacific and #5 in the world for Best global innovation: Global Innovation Index 2018
  • #1 in achieving human capital (knowledge, skills, and health) in the world: Human Capital Index 2019, World Bank

All these accolades prove that Singapore is a credible and reliable country for people to invest; most of the globe’s largest companies have a base here, and are very successful, so this is a good indication for individuals that this is the place to invest.

Stable Economy

This goes hand in hand with another great reason to invest in Singapore- our economy. Singapore has arguably the World’s most stable economy, with no foreign debt and a consistent positive surplus. As of last year, the Monetary Authority of Singapore owns over US$270 Billion in assets, and Singapore dollars are backed by gold, silver and other assets (unlike other fiat currencies that are no longer backed by gold), meaning that Singapore’s dollar is one of the most stable. The MAS (Monetary Authority of Singapore) regulates foreign exchange rates, keeping it stable.

 This is in great contrast to neighbouring countries’ currencies, like two of the weakest in the world, Vietnamese Dong and Indonesia Rupiah. Internal and external conflicts, civil unrest and clashes, incorrect economic decisions of the government and dependence on raw materials cause further instability.

Imagine going for a coffee one day, it costs $2, the next it costs $10 and the day after it costs $5…does that sound like fun? Of course not- it’s not ideal to invest in a currency that changes on such a regular basis, especially if you want to exchange it into another currency.

For example, trading between Australian Dollars to Great British Pounds, Japanese Yen, US Dollars or Euro is often incredibly volatile (some of the highest volatility in the world), so do you really want to keep losing money every time you convert or transfer?!

Regulations

The government and laws that this country implements, give business people and investors peace of mind when they park their money here; anti-corruption laws are heavily enforced, and the MAS ensures that entities must hold licences to engage in fund management activities. That means that if you invest in something that is regulated by MAS, you have no risk of this company being a cowboy, blowing all your assets of being part of some Ponzi Scheme. So long as they are regulated, you are guaranteed transparency, anti-money laundering and no dodgy dealings. This is a great safety net for first-time investors to know about.

Tax Benefits

Many countries heavily tax investments and overseas residents. Singapore is involved in many tax treaties and avoids double taxation where possible. Capital Gains on investments from financial institutions are not taxed (unlike in countries such as India and Australia) and there are tax reliefs available to foreigners, especially if you’re investing and using things like an SRS account.

Looks Good On PR Application

This point might be very appealing for some; Permanent Residency. For those trying to obtain PR, this can really work in your favour. While the scoring process is shrouded in mystery, we know that financial ties to the country are big bonus points on the application. If you have invested in Singapore, with a financial institution, it shows that you are dedicated to growing your wealth here, and achieving your long-term financial goals in Singapore. Note that it doesn’t have to be a large sum, even if you’re regularly contributing small amounts, this is great too.

Can Be Accessed Anywhere

One of the main questions I hear when I’m planning investments in SG is, “What if I move back to my home country? Will I still be able to access my money?”. The simple answer is yes; whatever money you have invested in Singapore belongs to you, regardless to where you are. Top up or withdraw with ease whilst abroad. This, paired with the strong and stable currency, means that if you move abroad later, you may also see the upside potential to your SGD going further in a different country. Win-win!

I do think that there are many more reasons why investing in Singapore is an excellent idea for expats, but that’s for another day. For more information on SRS, PR Applications and how investments work in Singapore, feel free to contact me using the comment section, or by scanning the QR code below.

Make Your Money Green As Well As Your Lifestyle!

I think it’s safe to say that a lot of people are concerned about climate change; over the past few years we’ve seen very obvious and drastic changes to our ecosystems that it almost too blatant to ignore…flooding, wildfires, mass extinctions…all of these have a negative impact on our environment.

Many of us try to do our part (recycling, using less plastic, swapping disposable for reusable), but what about our money? Money is green in colour, but is it by nature? If you have read my previous articles about cryptocurrency, you know that I am a bit apprehensive of investing in this type of asset because of the environmental implications. According to Digiconomist, a single Bitcoin transaction has, on average, a carbon footprint of 549.74 kgCO2 – the equivalent to 91,624 hours of watching YouTube. And of course, people are also concerned with industries such as gas, coal and oil, and would prefer not to invest their money in these kinds of industries.

 Companies themselves seem to be moving further away from unsustainable processes. Singapore was the first South-East Asian country to introduce carbon tax in 2019. The country has plans to increase the levy at faster rates, to tackle Singapore’s growing concern with climate change.

“We think it’s necessary so as to put the right incentive for industries and for companies to look at the way they’re making things and the way they’re producing things,”, Grace Fu, Minister for Sustainability and the Environment, commented.

This is all great news, and is an exciting future for Singapore on its journey to become greener. Companies and industries are sure to follow suit, so how can we ensure that our money and investments do so also, whilst still maintaining a positive portfolio?

The first thing you can do is invest in green power investments; there are plenty of industries utilising wind power, hydro power and even solar power, which you can invest in. Water energy seems to be the go-to for sustainability, so why not invest in energy producers with notable hydropower in their portfolios, such as PG&E and Brookfield Renewable Partners. Today, projects such as China’s massive Three Gorges Dam can supply electricity to between 70 million and 80 million households. According to the International Renewable Energy Agency (IRENA), hydropower is the most cost-efficient means of generating electricity, so this is a lucrative and exciting tech to invest in. China is also the leader in wind energy right now, so if this kind of renewable energy interests you, check out General Electric or Vestas Wind Systems.

Prevention is also key when moving forward to create a greener world, so you may want to look at companies in waste management, green transportation or even pollution controls. These companies aim to minimise the affect humans’ inevitable impact have on the environment, and are going to be around for a long time. We are always looking for new ways to minimise our carbon footprint, be it minimising car emissions, reducing greenhouse gas emissions from power plants or improving recycling facilities.

So We Should Stop Investing In Oil And Gas?

This is not a black and white topic, there are many things to take note of with oil and gas industries. While oil and gas is not sustainable, environmental policies, like the tax I mentioned before, it has pushed large oil and gas companies to move further in this direction. Many investment managers prioritise green funds, causing oil and gas companies to improve their business models to be greener. Look at their business models, it is easy to see that some are greener than others. In fact, several large oil companies are among the global leaders in promoting a tax on greenhouse gases and investing in energy sources that will help the world transition away from oil. Choosing the firms with the best environmental records and practices is another way of looking at green investments.

I’m not the biggest expert when it comes to green energy, but I would like to think that I am doing my part for the environment. It’s very simple to make small changes in your portfolio to make it greener, and I wouldn’t even rush to withdraw anything in oil and gas, and these companies offer sustainable investment returns, and are improving their business models to be more environmentally friendly.

Investment vs Insurance- Which is More Important?

Whether we like it or not, when we become adults, we have to start thinking about our personal finances and planning our future. For those who have not been taught about finances (I know pretty much none of us learnt this in school), planning finances could be a daunting task. The words ‘investment’ and ‘insurance’ often fill people with dread; is it a scam? Why should I spend my money on that? Do I need it?

The long and short of it is, both are important and you need both. But is one more important than the other? Let’s look at both and see for ourselves.

There are lots of kinds of insurance products but they all cover one thing- loss. The whole point of insurance is that it covers us if something goes wrong. This may be a hospitalisation, a disability, an illness, or some other kind of liability that would set us back financially. It is meant for protection; protecting us from the adverse effects of not being able to work or financial hardships. Many people think that planning for these things, such as death or disability, is a morbid topic and a worst-case scenario. But good health is never guaranteed, and it’s always best to get these things sorted before it’s too late. Insurance products also become more expensive as you get older, so it’s best to start early, so that these payments don’t interfere with any of your future life stages like purchasing a house or sending your kids to school.

Investing is all about growing money for our future- we can either plan for a passive income stream, so that we don’t have to rely on work so much. Or, we can plan for capital gains, so that we have a nice chunk of money when we want it. The idea of making money with not necessarily putting too much effort in (check out my articles about passive investing), is an attractive one. And, if we make all this money, why do we even need insurance?

Unfortunately, the truth of the matter is, it is unwise to have one without the other; investment increases our upsides, but insurance protects our downside. If you invest without being insured, you run the risk of losing it all should you fall sick or become hospitalised (also, can I just say, it’s very naïve to think you will stay healthy forever), especially if your investments are not enough to pay for your bills. If you just insure yourself without investing, you are selling yourself short, only planning for the bad things that can happen, and not planning for the good times ahead. It also means that you may have to constantly work and never be able to retire. Neither insurance nor investments will work on their own; you need to plan and review both in order to be financially successful.

A very important thing to take note of is that investments take a long time to accumulate, especially if you cannot set aside a lot of money to invest. Insurance policies cover you pretty much as soon as you get them. So, it’s always important to sort your insurance out first; once you are protected you can focus on growing your money.

But do remember that investing and insurance is never fixed and one-size-fits all. You need to constantly review your finances in order to keep up with your changing needs!

What Happens If I Leave My Money In The Bank?

Money saved is money earned…right? Not necessarily in the long run. Rising inflation rates can mean that you’re actually losing money by leaving it in your bank account.

If we take my DBS account as an example; the interest rate is a lousy 0.05%. The average rate of inflation in Singapore is projected to increase to 2%. In theory, if I leave $100,000 in my bank account for 5 years, I will have $100,250 after interest. However, this amount of money will have lost buying power. In theory, my money in 5 years will actually be worth $90,622; I will have lost $9,378 just by leaving my money alone! (It has a negative rate of -1.95% when inflation is taken into account.)

While inflation shows an upward trend in the economy, it can be a massive hindrance to our bank accounts! So what do we do? There are a couple of ways to take action today! The first one is to find a savings account that offers you a higher interest rate. Some offer 2%-3%.

The second and most effective way is to put your money in instruments that will get you a much higher rate of return. This is why I feel that investing is key; even if you find something that yields a conservative 4%, your $100,000 in 5 years would be $121,665.

I will be writing about in a future article the benefits of different investment instruments.

Hindsight is bitter sweet; it’s very easy to sit back and relax and leave your money alone…but you will regret it in the long run.

Investing Terms Made Simple

Do you find that there are just too many financial terms to remember, putting you off even considering investing? Well, there is a lot, and at first glance it is definitely overwhelming. So, I have complied a list, a mini dictionary, if you will, of all thing’s money- from hedge funds to dollar cost averaging. At the end, a lot of these term won’t seem so formidable anymore, allowing you to start investing with a lot more confidence.

Stocks

The first word that everyone thinks of when they hear the term ‘investment’, is stocks. Hence, why it is first in this list. But what even are stocks? And how do they work? A stock, also known as equity, represents the ownership of a part of a company. Imagine a company is like a big pie, and you want a piece of the pie. You can buy a slice, known as a share, and essentially you own a small part of that business’ assets and earnings. (Do note, however, this does not mean you own part of the company’s furniture, building or whatsoever you choose).

Shareholders (people that own the stock) can vote in shareholders’ meetings, sell said shares to others and receive dividends- more on that later.

Stocks are bought and sold on stock exchanges, although some can be sold privately. Historically, stocks out-perform other types of investments, which we will delve into further later.

But why do companies sell stocks? Don’t they want the whole pie to themselves? Simply put, companies sell stocks to raise funds so that their business can operate.

Bonds

You may have heard of a bond before when the topic of investment comes up. A bond is a fixed income instrument that works similar to an I.O.U. It represents a loan made by an investor to a borrower- just like an I.O.U. Its details include the loan due date and includes the interest and terms for payment.

They are normally used by corporations or government entities to pay for projects. Imagine you are a contractor, wanting to build a block of flats. You need equipment, materials, not to mention staff to carry out the job. All this costs money, sometimes more than a bank is willing to loan. So, you can instead ask many investors to lend the money to you. This is a bond.

Like stocks, bonds can be bought and sold, publicly or privately. They pay out lower than stocks, but are a safer option; if you hold your bond until maturity (the date it was supposed to end), you will get all your principal back. Principal is the amount you paid in the first place.

Mutual Funds

All these different ways of investing can seem a bit confusing. And doesn’t it require a lot of time, sitting and watching how my stocks are doing? And how do I know which stocks to buy? Or even if I should just stick to stocks! Well, that’s where mutual funds come in. A mutual fund is a pool of money that can be invested in different investment types, such as stocks, bonds and money market instruments. They are managed by professional money managers, who will decide how much money goes into what, and will shuffle funds if necessary. This is a great investment vehicle for those who do not want to invest hands-on, or do not have the expertise to do so. Money managers will try to make profit based on the investment objective. However, remember that these managers will charge a fee for doing all this for you.

Hedge Funds

Hedge funds are very similar to mutual funds; they both are actively managed and both use a pool of funds to invest. However, they face less regulation than mutual funds, and sometimes use non-traditional investment strategies. They are more expensive than other funds, and are normally specifically for high net-worth investors.

Index Funds

The last type of fund I am going to talk about is index funds. These are a portfolio of stocks that are ideal for saving for retirement. They have cheaper fees and expenses than actively managed funds.

  The term ‘indexing’ itself means passive fund management; instead of a fund manager picking and choosing investments, or deciding when to buy and sell, the fund manager will build a portfolio (a range of investments), which mirrors a particular index. The idea is that mirroring the stock market, the fund will match the performance. Nearly every financial market in existence has an index and index funds, the most popular index funds track S&P 500.

  Overall, index funds are great for diversification (coming up) and offer strong long-term returns. But, beware, they are vulnerable to market swings and crashes and lack flexibility.

Diversification

This may be a common phrase that you have heard. The term ‘diversification’ is the opposite to ‘putting all your eggs in one basket’. If you decide to invest all your money into one stock, say from Company X, and the stock crashes, you have risked it all and lost all your money. However, if you invest in several different stocks, in Company X, Company Y and Company Z, and Company X’s stocks crashed, at least you would still have your shares from the other companies. What’s even better than this is if you spilt your investments between different types of vehicles, like bonds, stocks, commodities (such as gold). This way you are not solely relying on the stock market doing well.

  Diversification is also why mutual funds and index funds are so attractive- your investment is spread out between lots of different asset classes. This massively reduces risk whilst aiming to maximise returns on investments. Diversification also includes geographical location. Investing 100% in a US market is less diverse than investing in US, Asian and European markets.

  Managing a diversified portfolio, with assets from different classes and foreign markets can be confusing and time-consuming, which is why mutual funds are available for the layman to purchase.

Dividends

Some companies will offer dividends; the company will distribute some of its earnings to its shareholders. Dividends are the investors’ reward for putting money into the company. They can either be paid in cash, or in additional stock. They are non-guaranteed, so if the company’s profits slump, so will the dividends (this is unlike coupons, which are a fixed amount).

  Dividends are good for those who have short-term investing goals and like to see the benefits of investing instantly.

Capital Gain

  If you buy a house for $100,000 and sell it for $200,000, you have a capital gain as you have sold your asset for more than you bought it for. This goes for investments too. If you buy stocks and hold onto them, selling them a year later at a higher price, you have a capital gain. Many countries will tax capital gains the same as regular income, but will tax long-term investments less. This encourages long-term investments that benefit the country’s economy. If you wish to benefit from lower tax on your investments, a long-term strategy is better. One thing to note is that there is no capital gains tax in Singapore!

Risk

Life is full of risk, and so goes the same for investments. Every investor is tolerable to a certain amount of risk. If you are a high-risk taker, you are willing to take a risk for potentially a high return. If you are quite safe with your investments and invest in say a US treasury bond, then be prepared for lower returns. Generally, in finance, the greater the risk the greater the gain. However, this means that you might risk losing all your investment that you initially put in.

 Risk is measured by historical behaviours, although historical behaviour is not indicative of future outcome. Below are some investment types, ranked from low to high risk.

  It is generally thought of that low risk = low reward, high risk = high reward. However, there are some ‘hidden gems’ that are low risk with a high reward, these often are too good to be true. Any investment that is high risk, low reward, is generally not worth it.

Dollar Cost Averaging

  This concept really is a life-saver for those who do not wish to time the market or sit watching their stocks. The idea is that by putting the same amount of money into investments for the same period (once a month, once a year), you will gain more in the long run than if you tried to time the market.

 For example, you spend $20 a month on coffee for 4 months. In January, the value of the coffee drops to $5 each- so you get 4 coffees. In February, coffee is worth $4 each, so you get 5. In March and April, coffees are worth $2.50, meaning you get 8 each month. In total, you purchased 25 coffees for an average price of $3.20. If you would have spent all your money at the same time, you would have only bought 16 coffees, for an average price of $5 per cup.

  This method reduces risk and reduces the overall impact of market volatility.

Compound Interest

We’ve come to the end of the list, and I’ve saved one of the most important ones until last. Compound interest is essentially interest on interest. Interest is added to the initial amount, and then also on the interest already earned. It makes any sum of money grow faster than simple interest, and is the beauty of investing. Money that you invest over time can compound interest either annually, monthly or any increment of time. There are many financial calculators online you can use, to see how your investment can grow over time. It’s not as simple as just multiplying your initial investment by the rate of return, as it takes into account all the interest gained over a set period of time.

  I hope you have found this useful. By now you will know all the basic terms. The investing world is your oyster! Please share this with those you know who are keen to invest. Feel free to comment your questions below!