Got US$200,000? We have 6 ways to invest it
Every investor is constantly on the lookout for the most optimal ways to deploy their investment funds.
In this article, we will cover the scenario whereby an individual might have US$200,000 in capital that he/she is intending to allocate across various asset classes.
But before we go straight to the possible choices of asset classes, it might be prudent at this point of time to bring up the term ‘Accredited Investor’; since it is highly likely that when someone has that amount of investable capital, he or she would fall under this specific category.
What is an Accredited Investor?
As defined by the Monetary Authority of Singapore (MAS), if you have personal assets, including property, of more than S$2 million (of which your primary home can contribute only up to half that value); or an annual income matching or exceeding S$300,000 over a preceding 12-month period; then you would fall into the ‘Accredited Investor’ or ‘AI’ category.
It is implied that an accredited investor is able to withstand more financial risk as compared to a non-accredited investor; and it is for this reason that certain financial products, which are more sophisticated in nature, are offered to these high-net-worth individuals and not to the rest of the retail investors.
That being said, the government has put measures in place recently to provide added protection to accredited investors. This is to try and prevent this group from being targeted with excessively-risky products.
Take your pick
Anyway, coming back to the investment options available, should you have US$200,000 available at your disposal, here are six ways to invest such a sum. Each alternative has a different degree of risk and can provide returns that may vary depending upon the condition of the financial markets at that point in time.
1. Stock market
The Straits Times Index (STI) ended 1.68 points higher, ending up at 3,177.27 recently; taking the year-to-date performance to +10.29%. In the last year, it has gained about 20%, climbing from a low of 2,588 to its current level of approximately 3,100.
What has caused this rally in prices? Commodity prices are rising and investors are now regaining their confidence in the Chinese economy. Additionally, Singapore’s stock prices are strongly influenced by US stock prices, where the euphoria about President Trump’s business-friendly policies is fuelling the markets.
But will prices of Singapore’s shares continue to rise in the immediate future? Although it is impossible to predict the level of the Straits Times Index with any degree of certainty, it is probable that the current rally will lose strength in the coming months.
If you are not interested in watching the stock market and prefer having a more diversified portfolio, consider investing in the Lionglobal Disruptive Innovation Fund. The passively managed fund has a portfolio of 100 disruptive companies that are screened according to market capitalisation, price volatility, sales growth, long-term earnings-per-share growth, and price-to-sales ratio.
This well-diversified portfolio is rebalanced on a quarterly basis to ensure that the fund holdings are reflecting the up-to-date performance of those individual stocks.
2. Singapore Savings Bonds
If you are looking for absolute safety, you can’t do better than the bonds issued by the Singapore government. These bonds have an extended maturity period of 10 years, but investors have the option to exit early. Redemption before the entire 10-year period is over does not attract any financial charge.
This is an ideal financial product for those unwilling to bear any risk at all. What could be the downside? The interest rate that you earn will be very low. Although returns vary on the basis of the month of issue of the bonds, expect to earn less than 3% per year.
There is one more limitation that these bonds have. The maximum that an individual can invest is S$100,000.
Commercial and residential property have traditionally been a favourite with long-term investors. There are several advantages of buying real estate:
- As a landlord, you will earn a regular monthly rent.
- There is a likelihood that in the long term, the value of your property will increase. If this happens, you may decide to sell and realize the profit that you have made.
- An investment in property helps you to diversify your portfolio and also serves as a hedge against inflation.
While the short-term outlook for property in Singapore might appear shaky at the moment, with real estate prices registering a decline for the last 13 quarters, some savvy investors are just waiting for the market to bottom out before committing themselves to a purchase.
4. Bank deposits
A time deposit in a bank offers a high level of safety and easy liquidity. However, interest rates are low and this form of investment is suitable only for those individuals who want to ensure that their principal does not get depleted.
If you need to deploy your money for a certain fixed period, a bank time deposit can provide the most appropriate option. You can place a deposit for periods ranging from one month to three years.
The only drawback of this form of investment is the low return that you will earn. A time deposit of S$200,000 for two months in OCBC Bank will earn an annual interest rate of only 0.05%. Longer tenures earn higher rates. The maximum interest rate is available on a 36-month deposit, but even for this tenure, it is merely 0.65% per year.
5. Real Estate Investment Trusts (REITs)
Investing directly in property can be a complicated affair. You need to ensure that the real estate that you have purchased is well-maintained and meets the expectations of your tenant. You would also have to pay property tax on the flat or commercial property that you own. Additionally, you would be taxed on the rental income that you receive.
Many investors find that directly owning property places a great deal of responsibility on them and requires them to devote a significant amount of their time. Instead, they prefer to invest through a Real Estate Investment Trust (REIT).
An investment in a REIT is essentially a share in a company that buys properties on behalf of its shareholders. The income that the REIT earns is distributed in the form of dividends.
However, some of Singapore’s REITS are facing difficulties because of the depressed property market. A recent Bloomberg report points out that six industrial-property REITS have recognised a collective fall of S$296.3 million in the value of their assets in 2016. This sum is greater that the gain made by these REITs in the last five years.
6. Alternative Investments
Alternative investments are also great options to consider investing in if you are skittish about market movements and want to invest in something that isn’t susceptible to events such as Brexit and the like.
Examples of alternative investments could be avenues such as The Watch Fund, whose founders have proprietary access to investment-grade watches due to, among other reasons, their vast experience and network in the industry.
On average, their investors stand to make a net yearly return of between 20 to 30%.
It should also be noted that this figure is a net amount, since you do not need to pay either annual fees or management fees, and there is also no lock-down period on your investments.
Which should you choose?
There is no simple answer to this question. While a certain investment may have some advantages, it will also have some drawbacks. Investors should understand their risk appetite before committing themselves to a specific financial instrument.
But while every individual hopes to minimize risk as much as possible when it comes to investments, most people need to face the reality that if they are seeking to earn higher returns, it will concordantly involve a higher exposure to risk. As the saying goes: ‘no risk, no reward’.