Investors in a Squid Game cryptocurrency lost an estimated US$3.38 million when the anonymous creators abruptly pulled the plug, according to tech website Gizmodo.
Unfortunately, this coin looks like a scam.
The Squid Game cryptocurrency was hyped up, promising returns that did not materialise.
Investors, or should I say speculators, went in with the wrong expectations, and ultimately, made the wrong choice.
There’s something to learn from this unfortunate episode.
As investors, we are faced with a dizzying array of choices on where to put our money to work.
Some choices are safer than others.
The safer options available today include leaving your money in your bank account, fixed deposits or bonds.
Some investors may even prefer to top up their CPF account to earn a return of between 2.5% to 4% per year.
But what is safe today may not be good enough for tomorrow’s needs.
Inflation is unmistakably on the rise, if you look around you.
Households are facing higher electric bills after multiple utility providers exited the market.
Meanwhile, bus fares are also being hiked before the end of this year to cope with rising operating costs.
At the same time, Trade and Industry Minister Gan Kim Yong has warned that food prices are expected to rise in the coming months.
At the minimum, our wealth has to keep growing to keep up with inflation.
Your destination and your vehicle to get there
Every good plan starts with an idea of what you want to achieve.
To use an analogy, you need to have a sense of where you are headed to know the right vehicle to use.
You wouldn’t jump on an airplane to fly to Johor Bahru — that’s an impractical option.
Likewise, riding a bicycle to Europe will take too long.
Investing works the same way.
Some of you may be looking to create a monthly income stream of S$6,500 to cover your household expenses.
Others may have a specific retirement target amount in mind.
And then, there are some of you who are fortunate enough to have amassed enough wealth to last you a lifetime.
Under such a fortunate scenario, protecting your capital and generating a nominal return of 3% to 5% may be sufficient.
Such returns may be achieved without investing heavily in stocks or, heaven forbid, Squid Game-based cryptocurrency.
Expectation versus reality
Understanding the returns that bonds and stocks can offer is key.
A bond usually offers a return of around 2% to 4% per year.
The safest among them would be a Singapore government bond.
However, the best yield you can get from this bond is a little over 2%, provided you are willing to leave your money untouched for 15 to 20 years.
Translation: your money will be as safe as can be, but the returns are unlikely to be enough to protect against inflation.
Yet, aiming for a higher yield from bonds comes with risks.
A perpetual bond or perps typically offer better yields that are close to 4% — but there is no guarantee that the bond issuer will redeem it after the stipulated time frame.
In the worst case scenario, you could end up holding these perps forever.
Going for anything above 4% usually exposes you to higher risks.
The cautionary tale of Hyflux’s perpetual bonds, which offered a 6% yield in 2016, serves as a warning against expecting too much.
Ultimately, Hyflux defaulted, and bondholders are likely to lose their initial capital.
Stocks for the long run
With inflation on the rise, it is time for you to consider putting some money into stocks.
Historically, Singapore’s Straits Times Index (SGX: ^STI) has generated an average return of a little under 6.4% per year, which is a better long-term return than bonds.
The higher returns can also help you stave off the negative effects of inflation.
A word of caution, though.
These average returns do not happen like clockwork.
There will be years where there are better than average returns, and years where returns fall short of the average.
Such ups and downs will even out over time …
… which is why holding stocks for the long term is critical if you want to improve your odds of achieving higher returns.
Since we launched The Smart Dividend Portfolio in February 2020, we are fortunate to be able to generate a return of 30.8% at the end of October, handily beating the STI’s return of 0.8% over the same timeframe.
For dividend seekers, the amount of dividends we collected has more than tripled for the first 10 months of this year compared to the whole of 2020.
At the core, our philosophy is straight forward …
… we seek companies that can continue paying us dividends for life and will tenaciously hold them.
By doing so, we have effectively positioned our portfolio to ride Singapore’s economic recovery and have been rewarded with substantially higher dividends this year.
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Disclaimer: Chin Hui Leong does not own any of the companies mentioned.