Searching for Fixed Income Investments

Following my last post, I received a few queries around DIY options. Many obviously still prefer to invest on their own and save the payment to financial advisors. Actually, it is not that difficult to DIY as long as you have time and interest to do proper research. In fact, it can be very fulfilling. But to many, time is a luxury and we need every second of it to do things that we enjoy most.

Many people are aware of the options available around equities investments. Stock markets, ETF, Unit Trust etc are readily available for retail investors. In US, you can even just buy 1 share of a listed company.

I get more questions around the options for fixed income investments and thus I will focus this blog on it.

In actual fact, for us living in Singapore, we have many options to consider. Let me name a few for you to consider (some may surprise you :-))

Bonds

(1) CPF

Have you thought about this? Everyone of us has a CPF account. Whenever we feel like it, we can actually top up cash to our CPF special and ordinary accounts and then let it earn compounded interest year after year.

CPF Special account offers us at least 4% while ordinary account 2.5%. Imagine your investment grows by 4% every year without you doing anything. And the best thing is that it is RISK-FREE! There is no fear that you will lose your capital.

But I know, many of people are probably remarking … “Yes yes warrior, I know but I can only withdraw at 55 years old. What if I need money now?” … Yes yes, that’s the catch – I guess we should do this moderately and not “dump” everything in. We still need money for emergency and rainy days when they happen.

If you keep a habit of having a small saving deposited into CPF every month or every year, you will be surprised by what you will get in later part of your life.

NEVER  underestimate the power of compounded interest!

(2) Singapore Saving Bond (SSB)

In my view, this is the best fixed income investment tool for us Singaporeans. It is easy to buy and available every month. The interest rate is transparent and will increase year after year if you continue to hold the bond. It is risk free, backed by our Singapore government. And the best thing of it all is that it allows you to withdraw when you need the money and still get paid interest up to that day.

Too good to be true, what’s the catch then? Every Singaporean can only buy up to $200k and the interest rate is not that fantastic. In the June issue, the ten years SSB is paying only 1.05% per year if you hold for 10 years.

But hey, its risk free and flexible. I still think it is best thing for Singaporeans to park their money – better than fixed deposit.

See: https://www.mas.gov.sg/bonds-and-bills/Singapore-Savings-Bonds

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(3) Fixed Deposit

Yes, I can’t miss that out right?

It is the most direct link to fixed income. Step into any bank near your house and you can open a fixed deposit anytime. You can select the duration you want and in which currencies.

Compared to SSB, it may have higher interest rate (see link below for latest), but if you decide to withdraw earlier, you are going to forfeit your interest even if you have one day to go before maturity. So, only do so for money you know you want to just park there and not touch it.

See: https://blog.moneysmart.sg/fixed-deposits/best-fixed-deposit-accounts-singapore/

(4) Singapore Government Bond or T-Bills

Similar to SSB, this is backed by our Singapore government. It is available to all of us to buy. The minimum denomination is $1000 (unlike commercial bond which is usually $250k).

  • Bonds are available for 2, 5, 10, 15, 20 or 30 years
  • T-Bills are 6 months or 1 year

Personally I prefer SSB over this because of the flexibility. Although the SG bonds and T-bills are tradeable, the liquidity is so poor that the spread is so lousy that you won’t want to sell unless you are desperate for money. So, this is another buy and keep option.

See MAS website for SG Bonds and T-Bills : https://www.mas.gov.sg/bonds-and-bills

(5) Bond ETFs available on SGX

The first Bond ETF that comes to mind is the ABF Singapore Bond Index Fund (SGX: A35).

It is basically a “group buy” for a whole bunch of bonds issued by Singapore government, statutory boards like HDB, LTA and government-linked entities like Temasek Holdings.

The returns is not as high as equities, but given the profile of the bonds that this ETF holds, you are almost guaranteed to get the annual dividend. Currently, the yield is about 2%, which is pretty decent in my view. Furthermore, it is rather liquid and you can buy and sell easily without incur a big spread.

See historical dividends: https://www.dividends.sg/view/A35

A “small” brother similar to this is : Xtrackers II Singapore Government Bond UCITS ETF. As the name implies, they also invest in Singapore Government Bonds. The difference is that this one doesn’t distribute dividends to you but reinvest it in the funds. One advantage it has is a lower expense ratio. But I still prefer ABF SG Bond as it is more liquid and I get cash dividends.

See this if interested: https://etf.dws.com/en-sg/LU0378818560-singapore-government-bond-ucits-etf-1c-kv4/

You are more adventurous (i.e. happy to take on more risk), you can consider the following Bond ETFs,

  • iShare J.P. Morgan USD Asia Credit Bond Index ETF = they invest in bonds issued by sovereigns, quasi-sovereigns and corporates in Asia ex Japan region (these countries usually have credit rating lower than Singapore). Their dividend yield is about 4%.
  • iShare Barclays USD Asia High Yield Bond Index ETF = they invest in high yield bonds issued by governments and corporates in Asia ex Japan region. You may ask what is high yield bond? They are not “investment grade bond” and some called them “junk bond”  🙂  They are usually issued by startup companies or capital-intensive firms with high debt ratios. The bonds are rated BBB- or poorer by S&P. For a higher risk you take, they reward you with a higher dividend yield, ~ 6%.
  • Nikko AM SGD Investment Grade Corporate Bond ETF = This one invest in investment grade bond. Bonds that are rated BBB and above by S&P. As this ETF is relatively new, its dividend yield is not well established. I would think it is about 2-3%.
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(6) Retail Corporate Bonds available on SGX

There are also retail corporate bonds that are available for us, the common guys on the street.

The minimum lot is not huge and hence, they are targeted at us – the retail investors.  You can buy it like you buy shares.

SGX has a dedicated page on this and you can research and shop around if you are interested. But beware! Corporate bonds can be risky and dangerous. I am still many of us are still hurt by Hyflux …

SGX dedicated page on Retail Corporate Bond: https://www2.sgx.com/fixed-income

(7) Institutional Corporate Bonds

And if you have a BIG warchest like $250,000 and more, you can enter the big league and have a choice to buy corporate bonds that are available in all shapes and sizes and different risk rating. Their minimum quantum is $250,000 or more. Well, they are not for me …

(8) Overseas Bonds

To complete the picture, you can also invest in Bonds ETF or Bonds of Global corporate companies in other global stock exchanges like the Americans etc. But in some of the countries, you will have to pay withholding tax on dividends (30% for US) and that reduces your return significantly.

Nonetheless, if you have the means to venture overseas, you can shop to your heart’s content in search of your favourite bonds.

(9) Capital and Return Guaranteed Saving + Insurance

This type of investment product has been gaining popularity of late. It guarantees your capital, a fixed return and get a bit of insurance on top of them I know of a few friends who are interested to buy them. NTUC Income Capital Plus is one of them. The catch is that you need to park your money there for 3 years.

See: https://www.insurediy.com.sg/product/ntuc-capital-plus.html

To conclude,

I believe in the benefits of diversification and hence, my portfolio has a mix of equities and bonds. I am glad that as a retail investor in Singapore, I have no lack of options and choices to do so conveniently via SGX.

I hope you find the above useful.

Have a great Vesak day holiday and take care. Stay safe.

Regards,

Warriortan

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