Commentary: When and what to buy? At what age? Investing for retirement in a COVID-19 economy


Your investment strategy should be based on an understanding of market fundamentals, the long-term outlook and your age, says Patrick Chang.


SINGAPORE: For every Singaporean senior looking forward to saving enough to enjoy retirement, the COVID-19 pandemic has been a rude awakening.

COVID-19 has upended entire industries and created uncertainty for many jobs.

While Singapore’s economy is expected to recover by 4 to 6 per cent this year, there is an economist consensus growth will be gradual, uneven with little relief for sectors related to air travel.

Jobs and fresh opportunities created with the slew of government schemes, including the Jobs Growth Initiative, Job Support Scheme and SGUnited Jobs and Traineeships have provided a ballast against unemployment for most Singaporeans.

But how have you nursed your nest egg during this period? Did you capitalise on opportunities during the global financial market’s longest recorded bull run ever or did you withdraw for fear of losing it all?

You don’t have to be a financial expert to know COVID-19 has resulted in market volatility and huge uncertainty. But investing wisely without taking on undue risk can help you realise gains and reach your retirement goals.


News of GameStop’s incredible surge have fueled interest in investment strategies that beat the market. 

But staying invested over the long term has been a better, Proven strategy where financial markets typically trend upward and market fundamentals remain.

While it may be turbulent over the last year, financial markets have weathered major crises over the past 60 years including the 1973 oil embargo, the 1987 Stock Market Crash, September 11 terrorists attack, and the global financial crisis in 2008.

Speculators got badly bruised with panic selling and plunges in stock prices but long-term portfolios recovered eventually.

Warren Buffet explained that this growth trajectory has to do with two key factors: Improvements in productivity and innovation. He said the opportune time to add to your portfolios were during troughs.

Similarly, Shelby Cullom Davis, an American businessman and philanthropist also said: “You made most of your money in a bear market, you just don’t realise it at the time”.

US capital markets have rewarded investors for such strategies that stay the course. Research shows such portfolios have gained total returns of more than 14,000 per cent.

And what if you stayed the course for the most part but missed out after withdrawing during volatile periods of trading due to fear? That same CNBC report points out that portfolios missing out on the best 10 days each decade made only 91 per cent.


Another piece of advice investors often give is to look for value before the market can. Some identifiable strategies include assessing if prices had been driven by emotions rather than changes in fundamentals.

In 2020, many regional indices with strong fundamentals are oversold or under-priced, as panic step in. 

One example is the Hang Seng Index, which fell to a low of 21,139 in March 2020, and closed around 30,000 on Jan 21, 2021, against a 27,581 average in 2019.

Many industries benefitted from the digitalisation leap the world has made during COVID-19 The tech industry had a bountiful year, with shares of Amazon and Alphabet hitting record high. The logistics and medtech sectors grew too.

READ: Commentary: Multibillion-dollar wizards – how COVID-19 is exposing what’s behind the curtain

Context is also chief. Typically, in a bear market, like the one we experienced in 2020, equities are most negatively affected, while commodities such as gold, are expected to see surges.


Making choice bets can be hard. It may be better to focus your efforts on ensuring a well diversified portfolio with various asset classes including equities, fixed income, alternatives and so forth, spreading across different regions and sectors.

Here’s a simple illustration. Take these three people. A invested in just one stock – SPH Holdings (no diversification – single company). B invested in one fund of Singapore equities (minimal diversification – single country, various sectors). C invested in an Asian fund (more diversification, in term of regions and industries).

Over the last five years, A saw his investment halve in value, without having the option to diversify. B’s portfolio (Nikko AM Singapore Dividend Equity Fund) gained a return of an annualised 3.5 per cent, whereas the more diversified Schroder Asian Growth Fund saw a healthy 13 per cent annualised gain.

One thing people have asked me is whether real estate and rental in Singapore remains an attractive investment. But with rental yields at 2 to 4 per cent, there are many investment funds with higher returns and less hassle.


Compounded returns also plays a vital part in growing your investment. I cannot stress this enough.

Assuming two individual of the same age, with well diversified investment portfolios, wanted to invest for their retirement.

A started early at 35, and friend B, 10 years later, at 45. Both invested S$100,000 and the annualised returns are similar at 5 per cent. What’s the difference?

When both reach age 65, B’s investment would have grown to around S$265,000. However A’s investment grows by a whopping four times to more than S$430,000.

Starting investment early will allow you to benefit from compounded returns.


Your age should shape your investment objectives and portfolio choices.

At 35, your key focus of the portfolio should be on capital growth, to build up a sizeable capital base. It should be equities heavy, consisting 80 per cent of the entire portfolio.

These should be in growth companies, new start-ups, industries and sectors that emphasises innovation, connection to the future economy like the Internet of Things, and some other aggressive funds.

But to buffer yourself against these high-risk assets, you may want to consider counter-cyclical assets like gold. On average, a major crisis hits the financial market every decade.

The balance 20 per cent should be in safer assets such as money market funds, government bonds and cash.

At age 45, your focus should shift to value investing, instead of continuing along an aggressive growth path.

Value investors will scout for diamonds in the rough: Investments undervalued and have significant opportunity to grow and appreciate, when market sentiment eventually recovers.

About 70 per cent of your portfolio should comprise equities, with some percentage in safer alternatives such as gold, and the remaining 30 per cent or less on safer assets such as money market funds, government bonds, fixed deposits and cash.

At 55, your investment goal should be on building up financial asses offering regular, consistent and life-long passive income. Growing the capital base now takes a back seat.

Investing in shares, funds and other financial assets with a good record of paying regular and attractive dividends, should be a priority.

But be careful not to err on the side of being overly risk averse. One rule of thumb is to ensure equities go no farther than 50 per cent of your total portfolio, and the rest in safer asset classes, including fixed deposits.

At 55, you can withdraw some money from your CPF account but beware of investment scams that have in recent years targeted this group.

What about those with more cash thinking of topping your CPF savings to the Enhanced Retirement Sum? Would having the Basic Retirement Sum be enough? It largely depends on your individual circumstances and retirement goals.

The Basic Retirement Sum would be a good option for the investment-savvy. They have the knowledge, expertise and confidence to invest elsewhere for higher returns.

For those keen to diversify retirement income streams, choosing to have only the Basic Retirement Sum may be a palatable option, for more cashflow.

And for everyone with little risk-taking appetite, having the Enhanced Retirement Sum can be attractive, especially when it provides life-long guaranteed passive income and can be bequested to loved ones in the event of their passing.

You can work hard but you should also make your money work hard for you to accumulate enough for retirement. A COVID-19 economy might shake up our understanding of risk but is no reason not to get smart on money.

Patrick Chang is the author of The A to Z Guide to Retirement Planning and producer of financial literacy card game Affluent. This commentary does not constitute financial advice, which you should seek from a trusted, independent financial advisor.

Source: CNA/sl

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