Cash and property are the two main asset Singaporeans own. Cash is an expensive asset to hold in terms of the opportunity to generate wealth for big goals such as financing one’s retirement. And unless you own more than one property, it is best to view the one property you have as a consumption asset.
Equities is an asset class that can provide the high average returns needed to build retirement wealth, or any large amount of future wealth for that matter. As we shall see, the average Singaporean fights shy of this important asset class.
A recent survey of investment attitudes of Singaporeans was conducted by BlackRock, a global asset management firm. The research is part of a Global Investor Pulse project which seeks to understand how people across the globe view and plan for their financial future. The Singapore version of this survey also covered aspects of retirement planning. The sample consisted of 1,000 Singaporeans between the ages of 25 and 74. Here are some highlights of the survey’s findings:
- About 50% of respondents say that growing wealth or having sufficient money for a comfortable retirement is a major priority. This proportion is underwhelming given people are living longer and rising cost of living.
- Young Singaporeans (25 to 44) expect to retire at 55 or earlier. They also underestimate the number of years they will spend in retirement – by 11 years (millennials) and 8 years (the 35 to 44 age group). Only those 45 years old and older come close to estimating their likely lifespan. Unless one has the benefit of a large inheritance, early retirement and underestimation of life span is a recipe for financial misery in old age. Could these attitudes also explain why half of respondents do not consider retirement wealth accumulation to be a major priority?
- Singaporeans across all age groups are highly risk-averse. Cash is close to 40% of the pre-retirement wealth among those in the 35 to 54 age group (wealth here excludes residential property). This is the precisely the age group that should be in the thick of wealth generation! Stocks, a higher return asset, has a portfolio weight of just 35%, too low to grow the wealth needed by an early retiree who can expect to spend at least 25 years with no regular income from work.
- Less than half of respondents view themselves as investors or view themselves as knowledgeable about investing. Lack of investment knowledge, a tendency to underestimate time spent in retirement plus excessive risk-aversion could be the most important reasons why Singaporeans love cash more than stocks. But the perception that “cash is safe” is an illusion. On average, over the long run, stocks beat cash, bonds, and inflation hands down.
To be a successful investor, one needs to have realistic goals and the right mindset.
To set realistic goals, one needs to get the facts right (e.g. estimates of life expectancy and living cost in retirement).
The mindset of a successful investor involves a willingness and capacity to take risk. Equally important, it involves the understanding that risk must be played out over the long run (decades). Only then does risk produces the anticipated rewards. To use a sports analogy, you are running a marathon, not a 100 meter sprint.