Is there really no risk when it comes to Fixed Deposit?


When it comes to growing your wealth through investments, it's natural to opt for safe choices like fixed deposits. However, while fixed deposits provide a sense of security by guaranteeing the returns, they often fall short when it comes to real financial gains when compared to the rate of inflation.


Singaporeans tend to settle for safe but modest gains due to a lack of risk appetite, compromising on the potential for higher earnings.


Can Fixed Deposit keep up with the rate of inflation?


One commonly overlooked aspect when subscribing to fixed deposits is inflation. As inflation rises, the value of money decreases, leading to a decrease in purchasing power.


With the current inflation rate hovering around 5%1 in Singapore (as data from April 2023), your money is steadily losing value if the fixed deposit rate is less than 5% which is the case for most Fixed Deposit in Singapore.


In such a scenario, the interest earned from fixed deposit investments becomes less impactful, as your purchasing power fails to see any significant growth. Thus, if you're seeking long-term capital growth, fixed deposits may not be the best choice.


What are the alternatives to Fixed deposit for medium to long term capital growth?


To maximize your investment returns, one can consider alternative options beyond fixed deposits. Here are a few instruments worth exploring:


1. Mutual Funds or Unit Trust: Diversify your portfolio and leverage the expertise of fund managers to access a wide range of investment opportunities such as Fundsmith Equity Fund.


2. ETF: Invest in a portfolio that tracks the performance of a specific index, offering a cost-effective way to enter the stock market.


3. REITs: Real Estate Investment Trusts offer an opportunity to invest in real estate assets without the need for direct ownership. Most REITS also provide a stable return in the form of (monthly or quarterly) dividends to the holder.


Which investment is for me to start?


Diversification is important when it comes to managing your risk and maximizing returns. It is generally advisable to spread your investments across different asset classes and sectors to minimize exposure to any single investment.


It is always important to be aware that investing in financial markets involves risks, and past performance is not indicative of future results. It is essential consider your risk tolerance, and seek professional advice to make informed investment decisions aligned with your financial goals.


Start your financial journey by speaking to us today.





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