How to earn a 4% on investments in Singapore

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Getting a 4% or higher return in Singapore needs a bit of work. For those easy to understand instruments such as fixed deposits, the rates are no where close to even 1%. So, in my attempt to avoid inflation eroding the purchasing power of my money, I am been putting in serious efforts in hunting for higher returns that yield at least 4%.

Below is what I have found so far. None invested yet as I want to do more research before taking the plunge.

Corporate bonds

Buying Singapore corporate bonds needs some homework to be done, at least for me! The basic terms of corporate bonds are different from the stock market so for any readers who have not purchased any bonds before, please do your homework!

Currently, the pool of Singapore corporate bonds is not huge but there are at least more 40 to choose from. Below is the list of the corporate bonds:

Source: http://tradehaven.me/2012/09/10/why-not-singapore-corporate-bonds/

When analysising the returns, there are 2 components: coupons and price appreciation. This is similar to dividend and price yield for shares. Looking through the list, it seems that the 30Y SGS represents the best deal in returns of price yield. To date, one can enjoy about 8% returns if he or she was to purchase it during the issue.

Coupons wise, there are couple of options that gives out more than 4% in coupon payment. However, that needs to be balanced out with the price you will be paying to have the rights to these future income streams. If you overpay for the bonds, you will find yourself not getting enough returns from the coupons to offset the price depreciation in the future.

Singapore REIT funds

Another way for a Singapore based investor to achieve a 4% returns is to put some money into Singapore REIT funds, which historically has been yielding between 4-5%. Currently, there are around 20 REIT funds listed in Singapore.

For those who might not be aware, REIT funds operates likes a big landlord. They use the funds to invest in properties and collect the rental incomes. Part of the rental incomes is then redistributed as dividends to the fund investors.

REIT funds represent a chance for investor to enjoy the proceeds of rental income without needing the big capital needed for property investment. If played wisely, REITs can provide a good rental yield that is higher than investing in a property.

Currently, there are around 20 Singapore REIT funds. Among them, I will be buying reits which have the following:

  • 7-8% yield
  • Below Net Asset Value
  • Strong parent company
  • Good property locations

I look at the returns of one of Singapore REIT blog called s-reitinvestmentblog.blogspot.sg. He has spent SGD115k and has yielded about SGD930 per month. That is a nice 9% returns. With the addition of capital appreciation, he might cleared 11% return. A very nice play and one that I want to emulate.

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