10 golden investment rules for volatile markets

Published in June 2020

Article Summary

With more of us living longer lives, we need to re-look the way we approach our investments, from our investment horizon to asset allocation strategy, to account for the additional years we will likely spend in retirement.

10 golden investment rules for volatile markets

Most of us will consider it a blessing that we are living longer lives on average.

Between 1990 and 2017, the average life expectancy in Singapore rose 8.7 years, from 76.1 years to 84.8 years. In fact, there are approximately 1,200 centenarians today, an 18-fold increase from 1990, when there were only 50.

Living to an older age gives you the opportunity to enjoy more of your golden years with your loved ones and pursue your passions during retirement. It can also work to your advantage with your investment plans, but you will first need to understand how a longer life expectancy could affect your wealth goals and, by extension, the way you approach investing.

Stable income for longer

With increasing life expectancy, it is important that you manage your money well so you do not outlive your retirement savings.

Statistically, about one in three Singaporeans aged 65 today will live beyond 90. What this means is that it is no longer good enough to plan for your retirement such that your income lasts you till the age of 90. You need to ensure that you have a stable income that can last you beyond that.

While CPF LIFE monthly payouts are lifelong and meant to cover the necessities each month, they are unlikely to be sufficient if you wish to spend beyond what is absolutely necessary. You need to ensure that your investment portfolio is able to supplement that.

Those who own an investment property can also rely on rental income to supplement their retirement nest egg, though it is important to remember that rental income is never guaranteed. In addition, certain stocks and unit trusts pay out regular dividends, but it should be noted that these are typically considered higher-risk investments.

A longer investment horizon allows you to take on more risk

An interesting thing to keep in mind is that living to an older age means you will have a longer investment horizon. For example, if you are 50 today, you have to realise that you would still need to stretch your funds to potentially last another 30 years or more.

This in turn means there could be a stronger case to take on slightly greater risk in exchange for higher expected returns. A longer-term investment horizon gives you more time to ride out the ups and downs of the market. So just because you are nearing retirement does not automatically mean you need to eliminate risk in your portfolio altogether.

Striking a balance between growth and income

Instead, to ensure that your investment portfolio can last you a lifetime, you need to strike the balance between receiving stable income and achieving investment growth in your portfolio. Gone are the days when you would simply sell away your investments upon retirement, park your money into a savings account and rely on your interest or withdraw a portion each month from the account for your living expenses.

Asset allocation is a critical part of the equation. You need to hold the right mix of equities, unit trusts, bonds and cash, so that you continue to grow your wealth to supplement your needs during your retirement years, which could last longer than you expect.

At the end of the day, living a longer life will give many of us the opportunity to enjoy even more fulfilling moments with those close to our hearts. Having the right investment approach could help boost your financial resources to make those experiences even richer.

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