Why Did I? Invest in Singapore Savings Bond

 In this series of blogposts, I will be writing about the reasons why I had chosen to act upon certain decisions in the past, present or for the future. This series will help me to analyse my decisions on hindsight, reflect on the mistakes that I have made, and understand the reasons why I came to do certain things. My hope is to learn and immortalize my actions for my and my reader's benefits and perhaps be the subject of some social research in the future. Hmm...

Why I Invested in Singapore Savings Bond (SSB) in 2017.

In 2017 at the age of 22 years old I invested in SSB Bonds. It was my first time investing in any kind of financial instrument and from my limited reading and understanding of investments at that point in time, SSBs seemed to be the safest form of investment that I could do. For my very first investment, I invested a total of $2500 to buy Aug 2017's GX17090X at a transaction cost of $2.

A brief overview of SSB. It is short for Singapore Savings Bond. Singapore Savings Bond is a type of security issued by the Singapore government that anyone above the age of 18 years old with a CDP Securities account can purchase. The minimum investment amount is $500, there is a transaction cost of $2 for buying or selling, interest is paid every 6 months, the term of the bond is up to 10 years and the bond is redeemable at any given month with no penalty. The interest for each month's SSB (there are bonds issued every month) is reflected in the MAS website, and through the website you will be able to find the interest rates of past SSB as well. The security is also fully backed by the Singapore government.

With this brief overview of the bond alone that I could easily retrieve from the MAS website, on hindsight it is understandable why I had chosen SSB as my first foray into investment. Below, I shall list some of the rationales that I had delved before investing and up to the point I chose to invest.

1. Spare Cash

At the age of 22, I had just started my university life at NTU. For the average Singaporean male, that also meant that I have just completed my 2 years of National Service. Thus, for anyone that have saved their meagre pay every month during NS like I did, they should be sitting on some spare cash in their bank account at that point in time just like me.

However, I should also be grateful because my parents are paying for my university fees that amounted to around $6300 per year (for a 4 year program), university accommodation fees that amounted to around $2700 per year and pocket money of $80 per week. Thus, in my situation, I did not have to take up loans for my education and my NS savings should be untouched unless I had been financially irresponsible.

These factors meant that I have a reserve of cash that is just lying in my bank savings account earning a measly 0.05% interest. Rather than losing the money on inflation, which is around 1-2% per annum in Singapore, I should look investment opportunities to beat inflation.

2. Low Risk Investment

No one in my family engages in any sorts of investments before, thus I could not consult them on this matter. My main source for information thus is the internet. As it is the first time that I was investing I was overtly cautious on the types of investment products out there. To me, the stock market was too daunting and other than stocks and bonds, I don't know of any other kinds of investment products that there are out there at that point in time. It took me about 3 months before I solidified my intention and actually did something to start investing in SSB. 

In the end, the fact that the returns from SSB is practically guaranteed (as it is issued by the Singapore government, and as a Singaporean I have high trust in my government to not default on the bond repayment) and that I can cash out my money at any given month, I eventually chose to invest in SSB.

Essentially, in my rationale, I was just parking my unused cash somewhere else where I can get additional money.

3. Clear Information

This was another factor that eventually persuaded me to invest in SSB. I simply Googled Singapore Savings Bond and was brought to the MAS website that was very clear about what the security is and how I could buy this form of security.

Once I resolved to purchase the SSB, I simply followed the step-by-step guide provided (cautiously and carefully as I was afraid of missing or making a mistake) and by the end of it, I was able to purchase my first SSB. The most important step for a first-timer is to open a CDP Securities account, which is essentially an account to store all your securities in, including stocks and bonds. This step is actually mandatory for anyone wanting to invest in SSB or trade in the SGX and is a sort of safe for you to store your purchased bonds and stocks. Thus, after I opened my CDP Securities account, jumping to trading SGX stocks was a no-brainer.

I suppose the confluence of these three reasons lead me to eventually invest my first savings into SSB and I never regretted it since. Seeing that my first investment went well with no hitch, I then decided to invest another $500 in April 2018's GX18050E. And... that was when I made my first mistake in buying SSB. With a transaction cost of $2, it is not practical to invest in small amounts and thus if I had wanted to see the benefits of my investment, I should have invested $2000 or more like my first SSB.

On Hindsight

1. Spare Cash

As it turns out, I really had not needed that $2500 at all during my university years and that $2500 would have otherwise just sat in my bank account, or worse, given away by the temptation of online shopping sprees. The only difference that my decision had made was that extra few dollars every 6 months that get credited to my bank account.

2. Returns on Investment

The longer I hold my SSB, the higher the interest rate will be, as shown in the picture above. For the SSB bought for August 2017 you can see that the initial interest is 1.15% but the interest rate gets higher the longer I hold the SSB and it becomes 3.35% by the 10th year which is in 2027. For 'parking' my $2500 in SSB, I earned $28.75 during my first year, $33 on my second year, $38 on my third year and $43.25 on my fourth year. On the other hand if I had left the same $2500 in a normal savings account, I would get roughly $12.50 on each year.

Saving an extra $15-30 a year may not seem much, but it is definitely something!

I bought another $500 worth of SSB in April 2018 partly because the interest rate was higher for that month and partly after noticing the benefits of putting my money into SSB after I received my first interest payment in February 2018. Thus, from the $500 that I had put in since, I earned $8.25 during my first year, $9.75 on my second year, $10.70 on my third year and $11.40 on my fourth year. Otherwise, I would have earned around $2.50 per year in my regular savings account.

During the covid-19 pandemic period when the stock markets dipped, I saw my SGX shares lose 50% of its value. In my investment portfolio, it was only bonds that remained positive in paper value for a couple of months. Thus I can see why bonds are seen as low risk and relatively safe investments for anyone to consider. However, there are downsides to the returns being safe and locked-in. About 4 months after the worse of the pandemic has passed, the SGX shares that I had bought had recovered in value and the returns on investment from my trades in the SGX has returned around 11%. Thus, in comparison to the ~1.5% interest from SSB, SGX shares with it's higher risks also offers the potential of much higher returns.