Many may think that depositing money in a bank keeps your money secure from theft and the risk of loss if you would invest it. Unfortunately, that’s not true. Your money really isn’t the safest in the bank!
Why it’s a myth:
Technically, yes, your money is safer in the bank than keeping it under your pillow. However, if you are saving in the long run, the safest place to put your money is not necessary in a bank account. Over the years, inflation turned out to be 2% to 3% per annum. You actually lose money if your savings account provides you with little to no interest, because you are not keeping up with inflation.
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There are many other options available that not only retain but also grow the value of your money.
Basically, there are three types of asset classes that we could acquire i.e. paper assets, real assets and business assets. How best to determine the optimum asset allocation differs from person to person.
A common game plan with paper asset would be Real Estate Investment Trusts (REITS), as REITS is mandated to distribute up to 90% of its income to its holder and its yield is normally higher than what we would have received from FD placement. But with the backdrop of rising utilities cost such as electricity, assessment tax hike, and other operating expenses, attractiveness of REITS may be fading this time if the REITS unable to pass the increase in cost to tenants, then the net profit will be lowered, ultimately lowering the distribution of income, thus making the yield lower.
Real asset such as property should be a better form of hedge against inflation as we are more accustomed to see landlord and owners increase the rentals every now and then, which makes property a favorable inflation hedging instrument. Of course, these assets have their limitations as the entry barrier is relatively higher, and they are also illiquid, and requires active management and perhaps some adjustment on tax treatment too. However, investors could also get over the entry barrier by forming investment holding company to share the entry capital, enabling one with lesser budget to also be able to participate in it. The caveat is, you and partners must have the know-how to manage it.
Business asset is also one effective passive income generator. When globalization leveraged with technology, perhaps your hobby and interest could be monetised to become a business asset. Some people are selling handmade crafts via eBay, or setting up stalls in flea markets, online stores and become a successful entrepreneur. Some others who are enthusiastic about photography have also found their way to monetise their hobby. You may also consider venturing into non-capital intensive businesses, such as insurance advisory, with a potential to grow into an independent financial adviser who is able to contribute raising financial literacy for the public, enhancing people’s life quality.
There is no secret formula, just do what you love, and what you are good at.
It is important for one to assess one’s risk profile and risk tolerance level before executing the plan, and to do proper risk management with regards to each strategy taken is also important as it can effectively increase the odds of achieving your objectives. Talk to our professionals today to formulate a optimised game plan.