Doing This With Your Ang Bao Money Gets You Ahead In Life
So you’ve visited all your married relatives and friends - from your parents to your 13th Aunt’s neighbour from Batu Pahat - just to get the highest Ang Bao collection yield this Lunar New Year. So what is the next step (apart from summoning your mahjong kakis or going on a spending spree)?
If you’re unmarried, the CNY period means an injection of cash! Spend some of your Ang Bao loot, by all means, but do consider setting aside some of it for the future. Parents with children should help their children with systematic savings of the Ang Baos received from their friends and relatives. Wouldn’t you be ecstatic if your parents handed you a seed fund for your 21st birthday?
By saving just $100-500 of your Ang Bao
collection every year from birth till age 18, the average person can accumulate
between $1,840 - $9,190 if they use a bank’s savings account, yielding around
0.25% per annum. Money in the bank is very well safeguarded (the Singapore
Deposit Insurance Corporation even insures up to $75,000 per person per
institution of your money), but if maximising growth is what you’re after, you
may wish to explore some of these other options:
1. Singapore Savings Bonds (SSBs)
SSBs are backed by the Singapore government
and are a low-risk way of getting higher returns than bank deposits. The SSBs
hit a new high in March 2022 (see this article in Business Times). This means
that an investor who buys an SSB and holds it for 10 years can expect to get
1.79% per annum return on their investment. An SSB offers liquidity - investors
can choose to exit their holdings at any time. However, exiting an SSB
prematurely will result in a lower yield. For example, if you hold it for only
1 year, your return after two semi-annual payments will only be 0.59% per year.
There are also barriers to entry - the minimum purchase for an SSB is $500,
with increments of $500, and a CDP (Central Depository) account is needed.
2. High-Yield Bank Account or Endowment Plans
Credit: Photo by Mathieu
Stern on Unsplash
To get a better rate of return above SSBs, you
can consider tools such as a high-yield salary-crediting bank account or a
long-term endowment plan. However, these options come with conditions such as
having to use the financial institution’s services, commitment to a specified
duration of payments, or sacrificing liquidity. Through these methods,
investors could potentially earn between 2-3% per annum, with some institutions
offering partial guarantees on the returns. This improves returns by
approximately 27% over a bank account, to between $2,141 - $11,707.
3. Investing
Credit: Photo by Aditya Vyas on Unsplash
Now if you had chosen to passively invest into
the US S&P 500 Index which achieved 9.51%[1] per annum rate of return over the past 20
years, you could potentially have between $4,343 - $21,717, a 136% improvement
over simply depositing your funds in a bank! Of course with such investments,
one needs to factor in personal risk tolerance, as not everyone is able to
withstand the volatility of the market. Incidentally, investing regularly over
a long period of time like this is known as dollar-cost-averaging, and this is
one of the best ways to do passive investing.
Huat are you waiting for? Take the leap, get your Ang Baos working for you and have a roaring start this Tiger year!
Written by:
Dax Quah
“You are your best investment, but always have
a Plan B”