The last time someone gave me financial advice, we were standing in the queue at Singapore Pools and he was trying to educate me on the finer points of how to predict 4D numbers.
But that’s not the only lousy advice you hear floating around. Here are four misguided pieces of financial advice lots of Singaporeans still live by.
Save for a home first, then worry about the rest
Buying your first home is a big milestone in the lives of Singaporeans—it means not just owning real estate, but moving out of the parents’ home and, for many of us, getting married.
So it’s no wonder people are in a hurry to attain this goal as soon as possible. The trouble is, many people prioritise saving for a home over their other financial goals, which include having a proper emergency fund and saving for retirement.
Retirement planning should go hand-in-hand with your property purchase dreams, especially as the earlier you start, the less you’ll actually have to put aside thanks to compounding interest. Having a more holistic view of your finances might also encourage more people not to overstretch themselves when buying property.
Your rental income will pay for your investment property
Singaporeans tend to be very optimistic when estimating their ability to purchase property. In 2013, an estimated 5 to 10% of property purchasers were overstretching themselves.
This is exacerbated by the fact that many purchasers who are buying for investment purposes (not necessarily limited to second home owners but also includes those who choose to rent out a first home and continue living with their parents) tend to assume the rental income will let the property pay for itself.
Unfortunately, things are seldom that simple, especially in our sluggish rental market. Rents have fallen steadily in the past few years, and it is not uncommon for picky homeowners to be forced to keep their units vacant for months while searching for tenants.
Also bear in mind that it’s very possible your tenant will be the kind who has trouble paying his rent or has a penchant for trashing the apartment—it’s not uncommon for the security deposit to be insufficient to cover the cost of fixing up the apartment after the departure of particularly inconsiderate tenants.
That trading seminar is the key to getting rich
I’ve lost count of the number of people I know who’ve paid thousands of dollars to sign up for trading seminars claiming to provide them with some fool-proof investment system that ensures they’ll never ever lose money. Anybody who tells you his system guarantees you’ll never lose money is lying.
Recently, a friend of mine attended one such seminar on stock investing. When I asked him what the speaker’s system entailed, he replied that the strategy was to buy undervalued stocks and then sell them when the price goes up. Uh, you don’t say! Any of you could have told him that without charging him $4,000.
There’s more than enough free information available, either in books or at seminars, such as those organised at National Library branches and by SGX. Heck, you could probably con others into attending an investment seminar run by you after a few weeks of research.
Buying investment-linked insurance is a good retirement plan
There is one reason so many Singaporeans buy investment-linked insurance, and it’s not because they’re a surefire way to a comfortable retirement. Rather, these plans are pushed very aggressively by insurance agents due to the high commissions they yield.
Now, we’re not saying investment-linked insurance plans are of the devil and should definitely be disregarded. But they’re a lot less rosy than most people think—check out this article elsewhere on MoneySmart to understand better.
Bluntly put, the investment returns you get from these policies are pretty crappy compared to what you could get on the STI, or even CPF. What’s worse is that many people buy these policies purely for the so-called investment gains, when the life insurance component is useless to them.
These policies are complicated and, if you don’t fully understand them fully, they shouldn’t be part of your investment portfolio. And you should certainly not be planning to use investment-linked life insurance as your main retirement strategy.
Has anyone ever given you the above advice? Tell us in the comments!