How do you safeguard your wealth?
I hear this question a lot from elderly folks, most of whom have already built up a sizable amount of savings from years of hard work and investing.
Without a doubt, all of us would like to retire without worries.
However, with the cost of living rising along with inflation, our hard-earned money may get eroded like sandpaper on wood unless we act on it.
The question now is — how should you protect our wealth during retirement? Do you sock it away in bank accounts, or use the cash to buy stocks and bonds?
Park cash in different bank accounts
The first step is to ensure that you have enough liquid cash to cover all emergencies and near-term needs.
But rather than keeping cash stashed underneath our pillows, we can park them in bank accounts and fixed deposits to earn a small amount of interest.
Investors need to know that there is a deposit insurance scheme that protects monies placed within a financial institution for up to an amount of S$75,000 per depositor.
As each bank is only covered for S$75,000, it is, therefore, a good idea to park cash in different bank accounts so that you can ensure that the majority of your cash reserves are protected by this insurance.
Invest in safe and stable blue-chip companies
The second thing you can consider is to allocate some of your retirement funds into safe and stable blue-chip companies. These are bellwether companies that have seen multiple crises and yet managed to emerge stronger thereafter.
I have provided some examples including OCBC Bank Limited (SGX: O39), SATS Ltd (SGX: S58) and Singapore Exchange Limited (SGX: S68).
Typically, larger companies tend to have a strong market position and an experienced management team that knows how to steer the company through thick and thin.
By buying a smattering of these companies, investors can enjoy peace of mind, knowing that their capital is in safe hands.
Focus on dividend-paying businesses
Finally, investors can also consider allocating another part of their retirement fund to companies that pay regular and sustainable dividends.
Dividends can provide cold, hard cash that can be used for your expenses or saved for a rainy day.
Many companies also pay out a dividend yield that exceeds the long-term inflation rate of 2% to 3%.
Earning a higher rate prevents your money from being eaten away by inflation over the long-term.
Examples of businesses that pay steady dividends are real estate investment trusts (REITs) such as Frasers Centrepoint Trust (SGX: J69U) and Mapletree Commercial Trust (SGX: N21U).
These REITs own physical property that generates rental income, providing a reliable and regular dividend.
Both REITs offer a dividend yield of around 4.4%.
A business such as VICOM Limited (SGX: V01), a leading test and inspection company, also pays out regular, twice-yearly dividends. The shares offer a dividend yield of 4.9%.
Get Smart: A worry-free retirement
With the three guidelines above, your retirement should have less worries.
Firstly, the bulk of your capital is protected by deposit insurance.
Second of all, blue-chips provide a good anchor for capital preservation, even if the economy goes through ups and downs.
Finally, dividend-paying stocks mean you stay ahead of inflation and also enjoy a steady stream of passive income.
Consider starting with these steps today for a worry-free future retirement.
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Disclaimer: Royston Yang owns shares in VICOM Limited, SATS Ltd and Singapore Exchange Limited.