Myths are very troublesome because they’re hard to dispel. What’s worse – if a myth crosses over from the realm of obscurity and becomes mainstream “belief,” that’s when the trouble starts.
The sad thing is that a lot of people end up getting hurt by accepting myths as truth – especially when it comes to financial myths that many wrongly assume are right.
So before you mistakenly set yourself on a course for financial disaster, read about the 3 money myths you should avoid at all costs!
1. Your cash savings are completely safe sitting in a bank account
One myth that most Singaporeans thankfully recognise is reality that their Central Provident Fund (CPF) account savings probably won’t be enough to retire comfortably on.
If you’ve read our article on what you can use your CPF for other than retirement, you already know that you’re pretty much limited to using it on housing, investing, education and insurance.
Of course, there are restrictions to how (and how much) you can use. Plus, you know that your money is effectively trapped until you reach the drawdown age (63 currently).
So where else can you put your cash savings, especially if you want to be able to access your money? For many, the only “safe” option is to place their savings in a savings account.
Yes, your cash will be safe in a Singapore bank. They are some of the most stable and safest in the world after all (although if something does happen, your account is only insured up to a maximum of $50,000 with the Deposit Insurance Scheme (DIS) – which is something to think about).
However, you’re forgetting one thing – the interest earned on your savings account is pathetically low, even on the best of savings accounts.
It’s simple arithmetic – if you’re making only 1 per cent+ on your savings account deposit but the rate of inflation is 3 per cent each year (or worse), your money isn’t safe at all. It’s actually being lost through inflation.
What can you do?
Learn about investing – because it’s the only way you can grow your money with an interest rate that’s sure to beat inflation. If you’re not very knowledgeable about investing, make sure to check out our Investing Learning Center to increase your knowledge.
2. Your expensive home renovations will greatly increase your property’s value
You already know that your home is the biggest purchase (and investment) you’ll ever make. It doesn’t matter whether you purchased a Housing Development Board (HDB) flat or a condominium, the possibility to see your property purchase soar in value exists.
Chances are you already know (hopefully) that a property’s value is really driven by a combination of nearby amenities (schools, public transport, malls, etc.), view and rental yields (no oversupply of flats/condos).
However, many homeowners mistakenly think that trendy renovations will greatly boost their property’s value.
That’s a huge and costly myth that has left many home owners in shock when a valuation comes back much lower than anticipated.
The reason why most renovations fall flat when it comes to boosting a property’s value is simple – not everyone has the same aesthetic taste and “trendy” renovations change with time.
The reality is that expensive renovations won’t increase the value of your property as much as you expect it to.
If you’re going to renovate your home and want some increase in value – go with functional renovations such as walk-in wardrobes, kitchen islands, wet rooms and partitioning that combines two rooms (ex. a kitchen that doubles as a study/TV room).
3. You should fully be invested in bonds during your retirement years
On myth #1, you learned that investing is pretty much the only way to ensure your money grows at a rate that beats inflation.
During your journey into investing, you’ll learn about portfolio diversification and the how you should adjust your investment portfolio periodically as you reach retirement age.
Basically, when you begin investing in your 20s and 30s, your portfolio will be more stock-heavy. Stocks are higher risk, but also provide higher returns – making it easier for you to reach your retirement goals.
However, as you age and hit your 40s and 50s, your “appetite” for risk and higher returns becomes less as you become more focussed on bringing in “steady” returns that are less risky. That usually means you’ll become more reliant on “safe” investment products such like bonds.
Once you hit retirement though, you shouldn’t just turn your invest your entire portfolio in bonds. That’s actually a dangerous move considering the life expectancy for Singaporeans is 82.
That means if you retire at 65, you need to make sure your nest egg lasts for another 17 years at least. And if you put turn everything into bonds, you’ll run the risk of outliving your savings.
You should always keep anywhere from 20 per cent to 50 per cent+ of your investment portfolio in stocks, depending on your risk appetite.
That’s to ensure that your portfolio continues to generate returns so you can maintain your retirement lifestyle for as long as possible.