4 Risk-Free Investments That Singapore Investors Shouldn't Overlook

In today's volatile market, managing risks inside your investment portfolio is definitely an invaluable skill for those investors, maybe even much more than learning to pick stocks or analyse candlestick patterns.

One of the fundamental methods for you to do this is to have a portfolio of assets which are allocated in accordance with your investing goals and risk tolerance. This means balancing out equities along with other asset classes like bonds, commodities, and cash.

Here are four investments which are risk-free for those practical purposes, which Singapore investors should not neglect as part of their risk management strategy.

# 1 CPF Top-Ups

CPF allows you to earn attractive risk-free returns. Along with monthly contributions from your employer and yourself, you can also consider voluntarily making CPF top-ups into your Special Account (SA), that will earn no less than 4.0% per year.

The first $60,000 of the CPF monies, with up to $20,000 inside your CPF Ordinary Account (OA), will earn an additional 1.0% in interest returns. This means that if you haven't maxed out the $60,000 bonus interest threshold, your top-ups would be earning 5.0% per annum – risk-free!

As one more perk, you may also receive as much as $7,000 in tax reliefs when you make cash top-ups to your CPF SA, and an additional $7,000 in tax reliefs when you make cash-ups into a loved one's CPF SA.

However, before you do that, you should know that unlike the above mentioned investments, which may be sold or redeemed early (notwithstanding that you will likely lose some value with this option), this is irreversible.

The catch would be that the monies are highly illiquid, since CPF top-ups are irreversible. Your monies is going to be locked up (and earning good interest for you personally) until your CPF retirement and can make withdrawals.

# 2 Singapore Savings Bonds

Launched in October 2021, the Singapore Savings Bonds (SSB) offers Singaporeans a method to enjoy superior interest compared to a regular savings account, without losing much liquidity or taking on additional risk. Having a minimum subscription of $500, it's also widely accessible to most Singaporeans.

What is interesting to note is the fact that while there is no penalty for early redemption of the bonds, in the event you need your money earlier, the bonds pay a step-up interest every year, up to the 10th year, which incentivises you to hold on to it until maturity. This means that the bonds pay a lesser return in the beginning years, but is constantly on the pay better pay each year, before the 10th year.

New tranches of SSB are issued monthly, and you can refer to the SSB website to begin to see the rates of interest for that upcoming issue.

Singapore Savings Bonds Interest Rates for October 2021 (Source: SSB Website)

As you can see, the most recent issue of SSB has a 1-year interest rate of 1.74% per annum, and it returns 2.42% per year when held over 10-years.

# 3 Endowment Plans

In contrast with the stock exchange, without any guarantees of any type, endowment plans are available with a few form of guaranteed returns so long as you pay all of the committed premiums and keep the policy till maturity.

Exposure to the upside of stock markets is provided by means of bonus, non-guaranteed returns that rely on the performance of your insurer's participating fund. This investment element of endowment plans is paramount distinction between an endowment plan and saving cash in a banking account.

Some endowment plans might have an insurance component too, which provides you a certain sum assured tagged towards the policy. This provides a payout in case of death or permanent disability.

# 4 Fixed Deposits

Although fixed deposits are not commonly thought of as a good investment, they offer us a method to earn guaranteed returns on our money that are greater savings account, yet still be virtually risk-free. Deposits with all full banks and finance companies in Singapore are covered underneath the Deposit Insurance Scheme, insuring up to $50,000 of the deposits in each account.

If you're thinking of creating a fixed deposit this month, you can employ this promotion by CIMB Bank in celebration of their 9-year anniversary. CIMB Bank is offering 0.09% per year of bonus interest over the existing online promotional rates for CIMB Fast Fixed Deposits accounts opened online from 1 to 30 September 2021.

Using Risk-Free Investments As A Foundation

Once you've built a basis of stable assets that guarantee your principal and returns, you would be inside a stronger position to create higher risk, higher return investments like stocks, properties, peer-to-peer lending, or even cryptocurrencies.

Many of those riskier investments are volatile and require you to definitely be able to stomach and ride out wild price swings to earn good returns over the long term. But a minimum of you can do so while being comforted at the stable and predictable returns the risk-free servings of your portfolio provide.