Many people have pointed out how boring the Singapore stock market is. To put it another way, such a market is always said to be for boomers.
This is a widely known fact that Singapore stocks tend to favour passive and conservative investors, both of which lean toward boomers who prefer a hands-off approach while taking lower risks.
In this article, we’ll look at why Singapore stocks are popular among older demographics and explain what you may be missing out if you dismiss the Singapore stock market:
4 Reasons why boomers favour SG stocks
1) No longer in the risk-taking phase of life
When compared to someone younger, your investment horizon is shorter as you get older. As a result, you would not have the luxury of time to wait for the stock market to recover if the stock market crashes like what we are seeing now.
Based on the chart, the STI ETF, a benchmark for the Singapore market, appears to do poorly in the long run compared to the S&P500 (US) and CSI300 (China). However, a quick scan also highlighted how volatile the other markets were compared to Singapore.
Case in point, the S&P500 is already down 25% this year, whereas the STI is down only 4%. Looking back over the years, STI has historically had a lesser drawdown (a peak-to-trough decrease) than S&P500, which underscores why S&P500 is considerably more volatile.
Now imagine if you are nearing or in retirement; you would not want to see such a significant impact on your portfolio, would you? Things may improve in the long run, but when will that happen? For those nearing retirement, imagine postponing your plans due to the recent crash. On the other hand, for those who have already retired and no longer draw an income, do you want your lifestyle to depend on the mood of the stock market?
This uncertainty about whether it will recover is not something you want to risk, which is why as you grow older, you would choose to invest in Singapore stocks, which have lower volatility albeit a lower return.
2) No longer a quest for profit but rather a means of preserving capital
When you are young, you usually don’t have much, and investing in the Singapore market is unlikely to accelerate your wealth accumulation. As a result, it makes sense to take a risk and invest in equities with a higher risk/reward ratio. Even if you lose everything, you still have time to start over.
However, as you become older, you normally have amassed a substantial amount of capital and reach a point where you are comfortable. You are unlikely to want to take so much risk in the market. At this point, it’s more about preserving the wealth you’ve accumulated over the years and enjoying the fruits of your labour.
Consider the average savings figure. For someone over the age of 50, he is expected to accumulate savings of roughly $380,000, which could yield him a yearly income of $22,800 or $1,900 per month (5% dividend) from the stock market. Of course, $380,000 is simply a reference point; if you’re an investor, you will likely have more capital by that age. This sum may then provide you with enough comfort to consider retiring soon. Something enticing than risking your money in an unpredictable market for a higher return, which you don’t actually need at that point.
And for that, the Singapore market offers some really attractive options for these investors seeking a slow but low-risk return. We have Blue Chip stocks and REITs that could easily provide 4-7% returns while preserving capital for investors.
3) It’s all about the cash flow
Building on the availability of blue chips and REITs to investors, these blue chips and REITs are then excellent candidates for investors looking for cash flow.
These dividend-paying companies often pay out semi-annually or quarterly, providing investors, particularly retirees, with a steady stream of income long after retirement. Apart from this, unlike the United States and Hong Kong, Singapore does not have a dividend tax, which increases the return when investing in dividend stocks.
4) More familiar with the company and staying within competencies
When you are young, you may have the energy to keep track of your overseas stocks by reading financial statements and following up with current events. However, as you get older, you may find yourself devoting more time to family and leisure.
This then provides a compelling case for investing in the SGX markets. I mean, you live in Singapore right? As such, you will have a better understanding of the firms that operate here. For example, a stroll to Sheng Shiong will give you an idea of how the business is doing, or perhaps a walk to the local malls will provide you with an idea of how retail REITs are performing.
So is it really only for boomers?
With all of the aforementioned factors, it appears that Singapore stocks are for older adults. However that said, Singapore stocks are not exclusively for older people. The characteristics of SGX markets tend to attract people who are much more conservative and require a constant flow of income typically associated with people who are retiring soon.
This, however, is not the other way around. Older people don’t mean the Singapore market. Even if you are a younger investor, investing in the Singapore market still makes sense if you want the abovementioned factors, such as consistent cash flow, lower risk, and sticking within your competencies.
Investing CPF money
Another factor that many people miss is the ability to invest with CPF funds. CPF Ordinary and Special Accounts currently pay 2.5% and 4% p.a., respectively. Investors who desire and believe they can achieve a higher return from the market may choose to open a CPF investment account.
There is, of course, one caveat: investors can only invest in CPF-included shares. These shares need to meet the following five criteria:
- The shares are offered by a company that is incorporated in Singapore
- The shares are listed on the SGX Main Board as a primary listing
- The shares are traded in Singapore Dollars
- The company allows Agent Banks to appoint all CPF shareholders of the company as proxies to attend and vote at meetings
- The shares are not placed on the SGX watch list.
A list of all CPF-included shares can be found here.
Given these conditions, it stands to reason why some young people would invest in the Singapore market.
Conclusion
Ultimately, investing is a personal journey, and everyone has different circumstances, leading to different needs. Singapore may be better for investors, regardless of age, because of the cash flow and stability it can bring. On the other hand, some investors may be looking for growth, which Singapore may not be able to provide as effectively as, say, the United States, which has one of the largest domestic markets.
Tailor your strategy to your risk tolerance. A mix of Singapore and overseas equities is also a good option because it allows you to diversify across different economies while enabling you to employ different investments for different purposes. Suppose Singapore stocks are for cash flow while US stocks are for wealth generation.
