Inflation – the search for returns for the average investor

If I recall correctly, the last time inflation rates or cost of living were at these levels, our interest rates on bank accounts were far higher. For example, in Australia where I come from, the standard bank deposit rate was 13.95% while inflation stood at 7.3% in 1990. Meanwhile, the standard bank deposit rate was only 5.85% in 2000 when inflation stood at 4.5%.

Today, inflation in Singapore stands at 5.5% annually to March but our standard bank deposit rates are only 0.05%, as it is much the same overseas.

The question then becomes: what has changed? Academics call it Modern Monetary Theory, where the Reserve banks in many countries purchase their own government debt to keep interest rates down. What this does is creates more money in the system and encourage greater consumer spending. And spend we have.

With the continual bottlenecks in the supply chain and abnormal labour markets due to Covid 19, we have experienced rising costs across the board, including in food and energy.

Seeing little to no return on their cash savings, many people in Singapore have opted to enter the property market, which is hot right now. If you can access the market without high entry taxes and are willing to spend large sums of money, this may be an option that you could consider if you believe it will generate good returns.

But what about the rest of us that just want to put our spare $30,000 or $50,000 to work without leveraging and without locking the money away for a long period.

The options that now stand out are an investment in shares (public company Shares), Unit trusts, bonds, ETFs or Gold.

Generally, we suggest that investors step carefully into the financial markets as the markets are currently bumpy and could continue like this for some time. Nowadays, equities are narrow and do pose risk with large scale devaluations on certain hot shares. Bonds have been subdued but of late, their usual safe-haven status has also become a little bumpy.

Gold could be a good bet, however, you may not want to own more than 5% of your assets in this class of investment. Unit trusts can be a good option but there are many out there that do not perform very well and the company or bank that sells them usually take a fair bit of commission upfront. This leaves ETFs, which if spread across a broad range of asset classes and classifications, can be an option for medium to long-term investments.

Yes, it does get a little complicated and generally many of us that have normal jobs. Once our day is over, we don’t want to be going home to spend 2 hours going through the financials of prospective investments.

But there is another option.

Have a chat with a financial adviser who can help plan and act on investments that suits your lifestyle.

Contact me, Daniel Dal Molin, for your complementary obligation-free consultation.

Email: daniel.dalmolin@gfcadvice.com

Number: 9058 9568

ABOUT DANIEL

Daniel has spent the last 30 years as an expatriate working in the Asia Pacific region. Over the years, he has given a lot of advice to fellow expats about investing and tax advice.  A few years ago, he decided to leave his corporate role of financing the supply chain for a large intermediary, and seek a licence to become a financial adviser. He has been a client of Global Financial Consultants for 10 years and a Licenced Financial Adviser with GFC for almost 2 years.