Tiptoeing Around Risky and Expensive
Successful investing is about managing risk, not avoiding it.
It must be tough being a young person in these recent times. This humorous article by the smart local shows some of the pains of “adulting” faced by the younger generation these days. Let’s also add the lack of social interaction brought about by the COVID-19 pandemic and the high prices of goods and services into the mix.
We recently wrote about the high prices of recent property transactions and whether there was a need to really own a property at these levels. A Demographia International Housing Affordability study shows that Singaporeans are not alone in experiencing a widening home unaffordability gap. The table below summarises the various districts in major countries into affordability brackets and you can see that we are in good (or bad?) company.
Singapore has been listed with a median price to income ratio of 4.7 as indicated by the study. However, this does not tell the whole story. SingStat data shows that the median household annual income in 2020 was $110,268. Taking a resale 5-room flat in Jurong East at $528,000, and dividing by the median household income will get you the ratio reported by Demographia. However as the HDB info shows, the prices of flats in more centrally located areas can be as high as $816,000 (Bukit Merah) and even up to $932,500 (Queenstown). We haven’t even gotten to the numerous $1 million dollar flats transacted in the recent times, nor private property like condominiums and landed houses. This will bump Singapore’s affordability into the severely unaffordable range.
Investments are not exactly “cheap” these days as well. Because of the 30-year bond bull market and the current interest rates, investors are scrambling to stuff different forms of asset classes into their portfolio just to get the same level of return they were able to get 10-20 years ago (see chart below). Whilst it is great for diversification, this exposes people to higher volatility than what they would have experienced in the past. Investors who are unaware of the rising risks in their portfolio will be shocked and could very well react in a negative way when the value of their investments fall suddenly.
If you need help to try to navigate risk and to assess the durability of your investments, we are here to help. With what has been happening over the recent years, it becomes even more important to seek advice to figure out how you can fund your retirement, get the same income as before, whether your investments are diversified enough and even if it is prudent to buy a property at the moment.
We can help guide you through these difficult decisions, assess the Value at Risk of your investments and to ensure that you are receiving an adequate return for the possible losses that your portfolio can take.
