Money decays. Whether you’re stashing it under your mattress or leaving it in a savings account with negligible yields, inflation is chewing away its value. It’s clear you should put your money to work if you want to stave off inflation. The question is how – and should you be satisfied with simply treading above inflation?
Core inflation has averaged 1.5% annually in Singapore over the last decade.1 As a benchmark against that, let’s look at the returns on two of the most common products in which non-market participants park their idle money – regular and fixed deposits. Regular deposit interest rates were roughly 0.17% p.a. 2 while the approximate return of the higher-returning fixed deposits at the time of writing ranged from 1.55%-2%.3 The average returns of fixed deposits at non-promotional rates are often below 1.5% which, as mentioned, does not even stave off inflation. Therefore, after inflation is brought into the picture, your actual realized returns on a low yielding, non-market participating asset may often be in the red.
Let’s then turn towards the equities markets. Apart from recessions, the aggregate movement of GDP, and consequently, most stocks, trends upwards over time. We can approximate the returns in the US stock market by looking at the performance of the Vanguard S&P 500 ETF (Ticker: VOO) – Since its inception in September 2010, it has averaged an annual return of 14.23%.4 Therefore, if you have a long horizon, the spread between the negligible returns on something like a fixed deposit and the upward trajectory of the equities market will widen significantly. That disparity only gets worse if your money is left idle in your checking account or, heaven forbid, under a mattress.
The goal for most of us would be to see actual growth on our assets, which means having money participate in the market to reap the gains we discuss above. The larger your asset base, the more you miss out on in terms of opportunity cost. Research from the Boston Consulting Group brings light to the asset distribution amongst high net worth individuals: In Asia, individuals worth between $1m-20m USD held approximately 64% of their assets in non-cash investments, including bonds, equities and funds.5 At that level, you’re losing out significantly against your peers if your assets are not put to work.
If you’re in the abovementioned group, you likely qualify as an accredited investor, which means even more doors are open to you. CONNECT by Crossbridge is one such door– Singapore’s first pure-play robo-advisor opened specifically to accredited investors. It aims to make the daunting task of allocating funds into the market as seamless and efficient as possible, taking into account the needs and goals of its investors.
For example, the portfolios at CONNECT have tailored asset compositions which are built with your risk profiles in mind. If you have a longer timeline and are willing to accept a certain level of downside risk, our platform may suggest our Aggressive portfolio, which places more weight on equities to put you in a better position to reap the gains from a bullish stock market.
CONNECT also limits your exposure to any one particular geography or sector, by spreading the portfolio over U.S., European, Asian and Emerging Markets assets. With a prudent level of diversification backed up by premiere investment research from Morningstar, we are able to deliver a satisfying rate of return while mitigating overall risk.
The unassailable truth remains that if your money is not working for you, then you are losing out to the atrophying effects of time. Here at CONNECT, we aim to put your assets on the right path and propel your investment journey forward in the fastest time possible.
1 Trading Economics. (2019, July). Singapore Core Inflation Rate
Retrieved from https://tradingeconomics.com/singapore/core-inflation-rate
2 Trading Economics. (2019, July). Deposit Interest Rate in Singapore
Retrieved from https://tradingeconomics.com/singapore/deposit-interest-rate
3 Lim, C. (2019, July 2). The Best Fixed Deposit Promotions in Singapore (2019)
Retrieved from https://blog.moneysmart.sg/fixed-deposits/best-fixed-deposit-accounts-singapore/
4 The Vanguard Group, Inc. (2019). Vanguard S&P 500 ETF Price & Performance.
Retrieved from https://investor.vanguard.com/etf/profile/performance/voo
5 Zakrzewski, A., Beardsley, B., Kessler, D., Mende, M., Muxi, F., Naumann, M., Rogg, J., Tang, T., Woulfe, T., Xavier, A. (2018, June). Global Wealth Report 2018
Retrieved from http://image-src.bcg.com/Images/BCG-Seizing-the-Analytics-Advantage-June-2018-R-3_tcm20-194512.pdf
Yahoo Finance. (2019, July). SPDR S&P 500 ETF Performance
Retrieved from https://finance.yahoo.com/quote/SPY/performance/