I was recently interviewed by Channel NewsAsia for a segment on their Money Mind TV program that is aired every Saturday at 8:30pm.

The focus of the interview was on how to get higher returns with cash as interest rates start going down. As we are aware, the yields for Treasury bills (T-bills) and Singapore Savings Bonds (SSBs) have declined. Fixed deposit interest rates have also been cut. 

Note: We are only covering traditional financial investments – equity, fixed income, unit trusts. We are not talking about real estate, gold, crypto, private equity, and exotic assets like wine or paintings.

Here goes: 

CNA question 1: What are the main alternatives you would consider putting your cash into?

Karen Tang answers:
Before considering your choices, it is wise to have a good overview of your financial plan – present and future needs, risk tolerance, time horizon etc. Once you have ascertained these, and realised that you have some idle money to invest, for most clients, I would recommend a diversified portfolio.

This is a portfolio that I like to envision as a pyramid:

• The base of this structure is solid, safe, and secure foundation – typically made of low risk, low volatility instruments such as government bonds and fixed income funds. 
• As we go up the rungs, we can introduce assets that have a much higher returns potential, though they may be more volatile. 
  

And finally, we recommend regular reviews with your financial advisor, at least once a year. What is also vital is that the portfolio should be realigned whenever necessary to ensure that your investments are on track towards achieving your life goals.

This is done by re-optimising i.e. selling off some investments that are not optimal any more and buying into those that are more attractive – based on VALUATIONS – keeping the overall portfolio structure & proportions and your risk tolerance in mind.

CNA question 2: What are the best fixed deposit rates currently?

Karen Tang answers:
For 12 months, fixed deposit interest rates offered by banks are around 3% p.a. But please keep checking relevant websites for the latest as the rates are prone to changes. 

As of 28 September 2024 (at the time of preparation for the interview):

• DBS (3.20% p.a.—min. $1,000 for 12 months)
• Maybank (3.20% p.a.—min. $20,000 for 6 months)

It goes without saying that we should always check the terms and conditions before putting our money down. 

CNA question 3: What about T-bills and SSBs – are these still choices or selections one should consider?

Karen Tang answers:
T-bills and SSBs are suitable for people who can hold till maturity.

As of 28 September 2024, the annual yield was approximately 3% for SSBs. For T-bills, the annual yield was just under 3%.

Investors should check the MAS website for latest information since figures are prone to change.

A very important element of risk that people should be concerned about is not just total loss of an investment, or short term price volatility, but also currency risk. This is the risk that arises when we invest in assets outside of our home country i.e. Singapore, because the foreign currency can go up or down during our holding period – and we would rather not be speculators of that.

That is why for Singapore investors who are risk averse and can hold till maturity, T-bills and SSBs are pretty good securities to invest in.

CNA question 4: Why would someone put money in T-bills, SSBs versus cash management accounts?

Karen Tang answers:
The key factor is that T-bills and SSBs are from the Singapore Government and backed by it. Cash management accounts are usually very safe but it may not be fully invested in Singapore government securities.

Also, T-Bills have a relatively short time horizon (under 1 year). As for cash management accounts, they are managed by the investment platform and they keep investing in “safe” funds. The time period depends on the features of the specific Cash Management account.

CNA question 5: What are other options [choices, alternatives] that offer a higher yield?

Karen Tang answers:
For higher yield i.e returns – especially to meet our retirement funding needs, we should look at, again, a diversified portfolio that has a greater proportion of well-chosen equity funds – that give us exposure to both global and Singaporean companies. Singapore listed companies by the way have the advantage of very good dividends, with no foreign currency risk on their stock price. 

Example: Our 3 local banks – DBS, OCBC, and UOB that constitute more than half of the STI, have an annual dividend yield is over 5% on current price.

If one is more inclined towards fixed income and still wants higher yields, you may have consider investment grade corporate bonds, foreign government bonds, or foreign currency fixed deposits. By that, I mean unit trusts that invest in these assets.

Also, when interest rates fall, investment grade bond prices rise (which is why their yields also fall; price and yields have an inverse relationship). That is why those who are invested in investment grade bonds would have seen an increase in the value of their bond holdings already.

CNA question 6: What about cash management accounts? Are the higher potential returns worth considering?

Karen Tang answers:
Cash management accounts are offered by some investment platforms to grow your idle cash with them without any lock-in (i.e. liquid) by automatically deploying the monies in safe (usually not very high returns) investments such as Singapore-dollar denominated money market and bond funds. This is an acceptable method to gain higher returns on your savings. 

However, do note that capital is not guaranteed in cash management accounts. These accounts are good for the short term.  

As of 28 September 2024:

• StashAway Simple Guaranteed (3.35% p.a. – 3 months with no minimum amount)
• Syfe Cash+ Guaranteed (3.33% p.a. – 3 months with no minimum amount)

CNA question 7: Should we also consider US dollar denominated options (fixed deposits, treasuries, money market funds)?

Karen Tang answers:
Yes, we can consider US dollar denomination choices of assets such as equity and fixed income funds, IF (very important ‘if’): 

• We have a long term time horizon of at least 5 years, preferably 10 years or more
• We are bullish i.e. optimistic about the US economy and assets going up in price over time

We can ignore the short term volatility of the Sing Dollar vs US dollar – while knowing that over the last few decades, the Sing dollar has actually APPRECIATED against the US dollar by about 2% compounding every year.

CNA question 8: What factors should we consider when choosing between the various options?

Karen Tang answers:
Factors to consider when deciding which is a suitable choice:

1. Client’s age;
2. Client’s risk profile i.e. tolerance or preference for volatility; 
3. Client’s goals, needs, dependants, and possible future scenarios to plan for;
4. Financial health of the client – through ratios such as savings ratio and net worth ratio; 
5. Current market valuations of asset classes – are we in bubble territory?;
6. Diversification of both asset classes and geography;
7. Quality of holdings – is each of them ‘worth it’; 
8. Liquidity of the securities i.e. assets – bought and sold easily and quickly, at low transaction cost;
9. Holding period i.e time horizon – longer term is better

CNA question 9: If cash is no longer king, how do we deal with it?

Karen Tang answers:
Oh, cash is still very much king, but for most people who have a long-term horizon and NEED to grow their money, keeping a lot of it in cash is not a good idea. 

You can set aside an emergency fund, and a little more for buying ‘distress sale’ assets, but the rest can be invested in a smartly diversified portfolio. Research reduces risk.