Building An Adequate Retirement Fund

Inflation is our day to day experience of the effects of compounding.  From the price of a cup of coffee to taxi fares and medical expenses, we can relate to a rising cost of living.  Some of us can remember paying ten cents for a cup of local coffee and $1.50 for a movie ticket in the 1970s.  Inflation is usually positive although in some situations the rate of inflation has fallen below zero.  The long-term rate of inflation in Singapore (1967-2017) is about 2.7%  (Source: Singapore Consumer Price Index (CPI) All items, Bloomberg Mar 2018). The effect of inflation is not particularly obvious over short periods of time and it becomes significant over long stretches of time.  Hence, inflation is also known as the silent thief that reduces the value of your savings over time.   

Another area of concern is the perception that all your retirement funds should only be invested in safe instruments once you retire. By safe instruments it usually means savings or fixed deposits, where the rate of return is lower than inflation. 

First and foremost, do you know what is the rate of return on your savings or fixed deposits? The average return from January 1998 to September 2018 is 0.5%p.a.  for savings account and 1.05%p.a. for Fixed Deposits (Source:https://secure.mas.gov.sg/msb/InterestRatesOfBanksAndFinanceCompanies.aspx). Savings and Fixed Deposit rates are below inflation. You may have funds invested in other instruments. Do you know what is the average returns of your funds? 

In order to protect your money or investments, you may channel all your retirement funds in safe instruments. If it is growing at a low rate of return or  below inflation, you are increasing your shortfall risk, otherwise known as Retirement Risks. By investing all your money in safe instruments, you are increasing your retirement risks and end up not having sufficient to last your retirement lifespan. Thus there is a need to balance your investment risks vs your retirement risks.



The compounding effect of money can also help you to build sufficient retirement fund. 

Compounding effect of $10,000



The power of compounding can also be harnessed to boost our savings over a shorter period of time.   For instance, by doubling the investment returns from 5% to 10%, investors can reduce the time it takes to double their wealth from 14.3 years to 7.3 years.  Put differently, a portfolio which achieves an annual return of 10% would nearly quadrupled in value in the same time than a  5%-return portfolio takes to double.   

Higher returns does not necessarily translate to higher risks. Potential higher returns can be achieved through exposure to a diversified mix of growth and risk assets, to mitigate investment risks. Creating a diversified portfolio is also an effective way to avoid concentration risk. Coupled with dynamic asset allocation, an investor would benefit from more scope to add value and also the leeway to avoid underperforming assets. 



With Active Asset Allocation, your funds can be diverted to capture more market upside while keeping market downside risks lower. When there are sharp falls in equity prices, there are opportunities to accumulate investment at a lower price, giving you the opportunities to gain from future upside. When the market is more volatile, more funds can be channelled to bonds. 

Fullerton Multi-Asset Premium Fund seeks to generate long term growth via dynamic asset allocation through multiple asset classes, providing you with income while growing your investment.



Find out how your investment can enjoy growth with income – visit Income’s Adviser Connect to speak to your financial planner now.