Your first paycheck, your first car, or your first go at the stock market – your parents have followed your progress with interest. With years of experience behind them, your parents, part of the baby boomer generation, would have passed on some wise words of wisdom.
Most of it may have boded well for you and helped you secure the nest you’ve aspired for, but now that you are on the other side, are you considering passing on the same advice to your children?
You might want to think again.
From a sleepy fishing island with a GDP Per Capita of US $500 in 1965 to being the center of global commerce today, Singapore has transformed. Naturally, parental advice must evolve as well.
6 old-school pieces of advice you may want to re-look at in today’s times
1. Real estate is the only real investment you need
Buy a property and your life’s made – isn’t that what you’ve always heard? That made a lot of sense for the older generations who were early movers in real estate and saw their valuations skyrocket as Singapore became a magnet for international talent.
However, in recent years, volatile markets have played havoc with property prices. In 2008, post the global financial crisis, real estate values dropped over 17%. In 2013, they hit their peak before dropping back again. The government has since brought in cooling measures to bring stability into the sector.
If you intend to buy a home for your own use, you can take advantage of the current low rates, but if you are looking at it from an investment point of view, it might be better to look for other options. Check out Real Estate Investment Trusts (REITs) that help you invest in real estate without having to purchase an exorbitant property.
2. Investment means zero risk bonds
Investors of the previous generation swore by bonds. They put their money into the government-backed Singapore Savings Bonds and CPF Special accounts and tapped into it when they retired. But considering the way interest rates have declined, don’t expect to live by on bonds alone.
Instead, recalibrate your portfolio to include growth stocks. Look for blue chip companies that yield dividends. If you have no idea of what stock to buy, you can go for the Straits Times Index (STI) Exchange Traded Fund (ETF) that tracks the top 30 companies traded in Singapore. This list of stocks helps you diversify your investment, giving you a balanced portfolio.
3. When in doubt, buy gold jewellery
Singaporeans, especially Chinese and Indian origin, love gold jewelry. For many, it is the perfect package of sentimental value and a financial asset. However, in its ornament form, gold is not the safe investment your parents thought it is.
The market cost of say, a necklace, is arrived at after adding the cost of labour, marketing, shipping and taxes. Even if the price of gold is at its peak, your selling price will take only the piece of gold into account, not the other charges you paid for. This may result in a significant reduction of profit for you.
Warren Buffet may not be a fan of gold but that is not to say it won’t work for you. Gold prices and the stock market are inversely proportional, making it an ideal diversification for your investment basket. Consider investing in bullion – coins or bars or better still get yourself gold Exchange Traded Funds (ETF), which you can sell when the right price comes along. You may not be able to wear your ETF to a wedding, but it will look better in your bank balance!
4. Never lend money
The previous generation took nothing for granted. They worked hard to make their way up. Naturally, they’ve seen enough of the world to conclude that lending is a bad idea. But what if there was a way for you to minimize your risk in lending, help a small business grow, and get a bigger bang for your dollar in the process?
We’re talking about Peer to Peer (P2P) lending. This Fintech innovation helps you shake off the measly interest rates on your bonds and accelerate your growth exponentially. Getting started is easy and you can start expecting returns a month after the SME receives your funding. A good way to minimize your risk here is to trade on a credible P2P lending platform and diversify your investment across SMEs.
5. Retiring at 62
In the past, retirement meant you were done with active service and financial planning and were now about to begin a sedentary life. However, that is not the case these days. More and more Singaporeans are now attracted by the idea of early retirement, around 50. Sounds impossible?
With good planning, it is not far-fetched at all. Retirement in today’s context means giving up a punishing full-time job to pursue hobbies, travel, and passions. To fund it, it is recommended that you cut back on expenses during your active years and build up a good nest.
Once you learn to live on 25% of your current income, you can quit your job and spread your investments across instruments to mitigate risk and ensure optimum growth. Take up freelance consulting or teaching or something part-time that along with your savings will give you a comfortable standard of living.
6. Children should not be exposed to money
It is true that kids should be kids and not look at price tags when they need something. But in today’s rapidly changing world, kids have a larger thirst for knowledge and dismissing their questions about money will do them more harm than good. What is a bank? How does a credit card work? Who puts cash inside the ATM? These are just some of the doubts young minds may come to you with. Why not take the opportunity to educate them?
It is never too early to impart financial education. Teach them about budgeting, get them started on pocket money, play a fun game of Monopoly. Being fiscally prudent is a great skill to possess in adult life and getting early lessons to shape it goes a long way in building their understanding of how the world works.