Ms Emily Lin (not her real name) startled her friends when she wondered out loud at one gathering: Why do people buy their home when it involves such a huge financial commitment? Why not rent instead?
Her point was that with $10 million cash invested very conservatively in government or statutory board issuances with coupons of about 2 to 3 per cent, an income of $200,000 to $300,000 per annum would be enough to pay rent, plus living expenses. No need to tie up one’s capital.
One friend responded that not many people have $1 million, let alone $10 million. Even so, Ms Lin’s point provides food for thought.
Meanwhile, Mr Matthew (not his real name) bought a home in Vancouver, Canada, three years ago — a detached house with 2,000 sq ft built-in area. In town to visit relatives and friends recently, he found that some of his better paid peers in Singapore with six-figure annual salaries find private property (of a reasonable size) unaffordable.
Even then, they persist in their ambition; property is still seen as a safe and steadily appreciating asset while stocks and bonds are regarded as risky.
But buying private property may no longer be the best strategy to build a golden nest egg for retirement, a DBS research report released last month found.
Mr Derek Tan, head of property research, DBS Bank, said: “By studying publicly available data, as well as aggregated and anonymised data insights from 1.2 million of our retail customers, we were able to diagnose that one’s ability to retire well would be negatively impacted if one adheres to the adage of property being a ‘golden nest egg’, given shifting demographics.
“Instead, we found several investment alternatives which have comparable, if not superior, returns that a retail investor can consider as part of maintaining a well-diversified investment portfolio.”
Data from DBS’ report, which studied the total returns of different asset classes since Q1 2009, revealed that property assets were outperformed by S&P500 and Singapore real estate investment trusts (S-Reits).
Driving the democratisation of investing
In North America, where Mr Matthew lives, it is common for working professionals and business owners to work with investment advisors to invest their savings as part of their overall retirement strategy. Most people own only one property — their home — during their lifetime.
In Singapore, more people are increasingly warming up to the idea of investing their surplus cash with investment advisors too, as the latter no longer serve only the very rich.
The use of technology could help to further democratise access to wealth management services. DBS, for example, is using technology to make portfolio management services, which were previously the preserve of the very rich, accessible to the masses.
Its robo-investment platform digiPortfolio, launched in 2019, offers a seamless way to invest. While the minimum investment is $1,000, subsequent top-ups can be as little as $10. Returns, in percentage terms, can be double-digit.
Swings in the market as a result of uncertainties arising from the Covid-19 pandemic have led more people to participate in the stock market and start their investment journey, said Ms Evy Wee, head of financial planning and personal investing at DBS Bank.
And more are doing so with the help of robo-advisors.
Ms Wee said the number of investors signing up for a new digiPortfolio account or topping up their existing portfolios tripled in December 2020, as compared to the year before.
“Currently, almost two-thirds of our digiPortfolio client base is made up of younger investors such as Gen Z and Millennials.’’
An interesting observation is that customers who invested in digiPortfolio comprise a mix of professionals from the engineering and manufacturing industries, instead of the more traditional business or financial services sectors.
An average investment portfolio is valued at about $4,000, and these investors typically start with smaller ticket sizes before topping up their portfolios progressively.
Almost 80 per cent of digiPortfolio customers are invested in the Asia-focused portfolio. One reason for its popularity could be that the portfolio is SGD-denominated, with all underlying exchange-traded funds (ETFs) listed in Singapore. This eliminates foreign currency exchange risk for investors.
Additionally, the portfolio falls under the category of excluded investment products (EIPs), which are investments deemed to be “non-complex”. Novice investors are able to access EIPs without having to pass a pre-qualification of their investment experience.
Tapping on tech for personalised advice
The bank’s investment process helps customers understand their risk profiles and goals, and aligns them to suitable recommendations. Its digital advisory feature in the DBS NAV Planner ensures that the investment advisory process is objective and transparent.
“It is another step forward in our goal to help one million customers invest and get insured by 2023, because we are able to leverage technology to scale its accessibility to even more customers,” said Ms Wee.
The investment products recommended by the digital advisor are a result of matching a customer’s preferences and investment risk profile to features of a product that are complementary. For example, customers who prefer to spend less effort on monitoring their investment performance will be recommended a product that is professionally managed.
“We are augmenting the investment advice our customers receive with the expertise of our funds selection team, where we prioritise funds which are positively-rated by the team and are aligned with our Chief Investment Office’s current investment views,’’ said Ms Wee.
The additional expert guidance will help novice customers overcome investment inertia, while savvy investors can make more informed investment decisions.
Another handy feature of the DBS NAV Planner: Investors can connect their investment accounts from different financial institutions using their Singpass ID for a consolidated view of their holdings securely in one place. They can also track the value of these investments on the go with daily price updates.
How investors can put their money to work
With so many investment choices in the market, it’s not unusual for new investors to feel overwhelmed by information. One way they can navigate this space is through digital tools, such as the NAV Planner’s ‘Make Your Money Work Harder’ feature, which recommends products that are suitable for one’s investment profile.
Its returns simulator helps to calculate how much your money can potentially grow if you started investing today, and compares the pros and cons of various investment products.
Young adults can make their savings work harder by using a personal deposit account that rewards them with higher interest when they transact with DBS in more than one way.
For example, customers can clock higher interest rates for their savings through the DBS Multiplier account by crediting their salary, using a DBS credit card and investing in digiPortfolio. Fall-below fees are waived for first-time customers and those aged 29 and below.
DIY investors can consider investment approaches such as the core-satellite approach. This is implemented by constructing a “core” with a combination of index-pooled investment funds, and forming a “satellite” with pooled investment funds or individual stocks that take advantage of trending themes and sectors that are likely to outperform the broader market.
Another approach is the barbell strategy, which has exposures at both ends of the risk spectrum with little in between.
The writer, an ex-Business Times journalist, finds tracking her investments a pain; a robo advisor is a pretty nice thing to have, and she dreams of the day when a robo cleaner, robo cook and robo driver become reality.
This is the last of a seven-part series in partnership with DBS
