By: Wilfred Ling
During a Christmas gathering with friends, someone asked me for a question: What is the best risk-free instrument in Singapore? It was an easy question.
My answer to that was:
There is no risk-free instrument in Singapore. Traditional risk-free instrument is associated either with a bank deposit (preferably linked wiith the Singapore goverment) or the Singapore Government Securities (SGS). But we know that bank deposits and 10-year SGS is below the inflation rate. It is forecast that inflation for 2008 will be 4-5% per annum.
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Additional Resource:
The Best Bank Deposit Rates in Singapore by Dr. Money
The CPF monies are also not truly risk free as there is a huge liquidity risk in your CPF monies being locked up for even longer when either of the following is raised by the Government:
1) Minimum sum
2) Minimum withdrawal age
Sad to say but if the 10YSGS yield for the last year is anything to go by, our CPF returns will yield even less when the Government decides to stop providing the 1% additional for the first $60k (first $20k of OA) of the SMRA accounts.
Hi Panzergrenadier,
Thanks for feedback. I agree with you but in terms of returns, at least it is guaranteed.
Cheers!
Dear Derek
While the returns are guaranteed, the age when you can use the money is not.
Liquidity risk is also a risk because if you are unable to liquidate your capital either in part or in full, you do not have cash to spend for living expenses.
The irony of the CPF system and specifically medisave is that many have the maximum amounts in their accounts but cannot use it for outpatient treatment unless it is for one of the chronic diseases allowed by the Government and even so is capped at a fixed amount a month.
The classic Singaporean dilemma of being asset rich (our homes) but cash poor when we retire is a real problem because if you cannot downgrade or somehow monetise your home for cashflows especially during times when the property market is in the doldrums, you may not be able to retire comfortably even when on paper you may be worth a couple of hundred thousands from your home value.