Why Holistic Wealth Planning is a Must, Invest News & Top Stories
Growing your wealth has become an increasingly pressing challenge. Extremely low interest rates suggest that investors should take risks to seek higher returns and capital growth. But uncertainties lurk in every corner, ranging from emerging and more virulent strains of Covid-19 to the prospect of a deeper recession.
The pandemic has fundamentally changed the consumption and investing behaviors of many people, says Ms. Chung Shaw Bee, head of deposits and wealth management at UOB in Singapore and the region.
“The rapid spread of Covid-19 last year has plunged the global economy into a deep recession and households around the world have had to take a closer look at their finances and adapt to these unforeseen circumstances. Today, the concept of risk is very present in the minds of investors. ”
In addition, the magnitude of the market fall last year in March and the sharp rebound that followed made many people “wonder if they managed the risk of their investments well,” she says.
The big question is: how do you plan your wealth so that almost all of your bases are covered? In other words, your portfolio remains resilient despite the volatility; that illness or an accident would not put a dent in your finances; and, thanks to all of this, that you are able to regularly set aside funds for your children’s education and eventual retirement.
Grow your money
Wealth planning can seem daunting, but it doesn’t have to be. It’s important to note, however, that there are no shortcuts, just as it is often said in finance that there is no free lunch. Investing regularly harnesses the power of compounding, so that even a small amount set aside steadily turns into a substantial amount over time.
The good news is that Singaporeans intend to invest more, as a UOB Asean Consumer Sentiment Study found.
Overall, 38% of Singaporeans aim to invest more, which is more pronounced among younger people. Among Generation X, people aged 40 to 55; Generation Y, aged 24 to 39; and Gen Z, aged 18 to 23; 39, 42 and 36 percent, respectively, indicate their intention to invest more. The survey was published last October.
Here are some steps to help you take stock of your financial situation.
Set financial goals
Framing your goals in terms of the short term (three to five years) and longer term (10 years or more) allows you to define investment horizons that will have a significant impact on the way you invest. As an article on MoneySense says, goals should be smart – specific, measurable, achievable, realistic, and time-bound.
Take stock of your assets and liabilities
Assets include amounts in bank accounts, investments, your Central Provident Fund (CPF) account, and your house. Liabilities include all loans, including credit card debt and home or auto loans.
Your CPF account is an essential basis of your financial plan. He earns substantial risk-free rates of between 2.5 percent for the regular account and up to 6 percent for the retirement account.
More Singaporeans are voluntarily reloading to maximize interest rates. Based on CPF data, the amount of pension supplements increased from $ 1.9 billion in 2018 to $ 2.9 billion in 2020.
Calculate your net cash flow
This involves accumulating your monthly cash inflows and outflows. Entries should include employment and investment income, including dividends. The outputs generally include household expenses and insurance premiums.
You may find that you have substantial sums on top of what you need for a “rainy day” cash cushion. Since cash is earning very little and inflation is generally expected to rise, amounts above this cushion can be placed in higher yielding alternatives.
Protection is the cornerstone of a financial plan because it addresses risks to life, health and your assets. Life Protection provides a lump sum upon death to cover your dependents until they can enter the workforce.
The same goes for critical illness plans, which compensate for family expenses when diagnosing a critical illness. Mortgage protection is also a must as it ensures that your home loan is taken care of in the event of death or permanent disability.
A hospital plan is essential. The MediShield Life and Integrated Shield (IP) plans are hospital and surgical plans under the aegis of the CPF. Here, it helps to consider your healthcare expectations and the affordability of premiums, especially for the elderly.
Premiums for MediShield Life and IP are deducted from your CPF account, subject to a cap. Runners must be paid in cash. Include children in your coverage of course.
There are some general and prudent principles to ensure that you are able to stay invested throughout market cycles.
First, be diversified so that any downturn in a single industry or geographic area does not cause an entire portfolio to fall. Second, invest regularly, which allows you to “pay on average” for your exposure. Regular investments allow you to buy more of an asset when prices are low, and less when prices are high.
Third, be patient and stay invested. Given the unpredictability of the markets, it is impossible to systematically time entries and exits. The data shows that it is much more important to stay invested for the long term.
Revisit your plan and asset allocation
Your asset allocation is an overview of your investment plan. An article on the website of the Investment Management Association of Singapore explains, “Asset allocation is probably the most important decision you have to make.
Research has shown that 90% of returns usually come from asset allocation. »Review your plan regularly, at least once a year, but especially when you change your situation.
Risk first as a basis
Wealth planning and advice at UOB starts with a holistic, risk-based approach. This proprietary approach views a client’s financial needs as a pyramid.
The database includes elements to safeguard its assets; the middle is for the creation of assets. These two layers form the basic strategy. The top of the pyramid is intended for the valuation of wealth and corresponds to the tactical part of the allocation.
With this starting point, the counseling process seeks to understand a client’s willingness and ability to take risk to ensure that they only take the appropriate amount of risk and work sustainably towards their financial goals.
Ms. Chung Shaw Bee, Head of Deposits and Wealth Management at UOB for Singapore and Region, says the bank takes a two-pronged approach to helping clients: protect and build.
It’s important to determine the appropriate level of risk to take, based on your goal and time horizon, she says. UOB’s investment portfolios include two types of solutions – Core and Megatrend. Basic solutions are generally less risky and form the basis of a portfolio. Megatrend solutions enable clients to invest in businesses capable of generating profits from future structural trends.
To improve the services of its client advisers, the bank deployed UOB Portfolio Advisory Tools (PAT), a specially designed digital advisory platform that draws on over 12 years of market data to simulate the expected performance of a portfolio in relation to various markets. scenarios.
“It helps clients better understand the potential downside risks and compare the volatility and risk / reward tradeoffs of different investment options. These tools are designed to help our bankers so that they can provide comprehensive, relevant and actionable wealth advice, ” she says.
UOB offers an omnichannel approach giving customers flexibility in how they want to engage with the bank. It ranges from digital tools and information to in-person advice.
An example of how the risk-first approach works:
Ms. Lim, 35, is a working mother with two children, aged two and four. Her risk profile after an investigation is “3”: she has a moderate risk appetite and is open to moderate volatility levels.
Based on the PAT, the counselor finds that she has a shortfall of $ 150,000 in critical illness coverage. It is recommended solutions to fill this gap.
Ms. Lim has $ 200,000 to invest. The recommended allocation is 80% for basic strategies and 20% for tactical strategies. The 80% allocation goes to low volatility solutions like global multi-asset funds and bonds to build wealth in a sustainable way.
The remaining 20% is allocated to tactical strategies such as stocks and structured notes to enable it to participate in market opportunities and megatrends identified by the bank.
Genevieve Cua is the editor-in-chief of The Business Times.
Read the first article in our Rethink Your Heritage series here.