SINGAPORE – People between the ages of 25 and 44 – the so-called Gen Zers and millennials – are investing less than those in other age groups and not taking enough risks to grow their wealth, a new report found.
Their investments are skewed towards more conservative instruments like Singapore Treasury Bills (T-bills) and Singapore Savings Bonds (SSBs), noted the study, which analysed data of about two million anonymous retail customers of DBS Bank/POSB.
It is certainly a safe and sure approach but financial advisers say that young investors can afford to take more risks by investing in asset classes like equities, exchange-traded funds (ETFs) or unit trusts given they generally have a longer investment horizon.
This will also put them in a better position to meet their desired retirement lifestyle, which can cost them more than $1 million.
DBS did an analysis and found that a 60-year-old person retiring in 2030 will need $550,000 to meet basic living expenses for the next 20 years.
The bank used data from a 2023 Department of Statistics survey of household expenditure and assumed an annual inflation rate of 2.5 per cent.
If this retiree wants to go travelling, for example, or make charitable donations, he or she will need as much as $1.3 million in savings.
This could comprise liquid assets such as cash, Central Provident Fund (CPF) savings and income from other sources such as payout from retirement income insurance, dividends from equities or rental income.
A retirement pot of $1 million in liquid assets is “a bit daunting” for some, including manager Kelly Chiew, 32.
Ms Chiew, who has a two-year-old son, is aiming for “savings of upwards a few hundred thousands” for her family’s retirement.
She says she is “extremely worried” that she will not have enough due to rising costs and inflation so she is doing what she can by investing in safer options such as SSBs.
“We cannot afford high risk given the volatile market situation,” she adds.
Others, like procurement manager Cheah Kun Cheng, who is getting married in March, believe the $1 million target is achievable for the couple, provided there are no unexpected expenses like parents’ medical bills or kids.
Mr Cheah, 35, is worried about retirement and does not mind taking a bit more risk as he seeks to build up his funds. He says: “My focus right now is high growth and recurring cash dividends.”
He has invested in ETFs on the US S&P and Nasdaq indexes.
He also bought into DBS, UOB, OCBC Bank, and Singapore real estate investment trusts (Reits) for their recurring cash dividends.
Mr Cheah says he will look into safer investments like T-bills and fixed deposits when he is older.
DBS found that those aged 25 to 44 allocate 15 per cent to 17 per cent of their monthly salaries to investments, much less than older peers, who put between 30 per cent and 49 per cent into various options, including fixed income, equities, ETFs and unit trusts.
The bank also found that these younger customers allocate between 52 per cent and 57 per cent of their investments into fixed income like T-bills and SSBs, an allocation it labelled as “overly conservative”.
Younger investors, with their longer investment time horizon, can consider allocating a larger portion of their portfolio to other asset classes, such as equities, to earn potentially higher returns.
“As we head into a falling interest rate environment, there might be other better assets such as Singapore-listed equities as well as Reits that can actually offer slightly higher yields,” says Mr Foo Fang Boon, an analyst at DBS Group Research.
Mr Foo notes that the target allocation of “up to 65 per cent into equities and 35 per cent into fixed income” is a good starting point for younger folk.
Ms Lee Meng, executive financial services consultant at GEN Financial Advisory, says some of her younger clients are hesitant to invest for various reasons.
Some steer clear out of fear. Ms Lee says some of these clients were introduced to do-it-yourself investing during the Covid-19 pandemic and lost money, so they do not dare to venture in again.
Others heard negative stories from family and friends, especially about how they panicked and sold during downturns.
Then there are clients who are overwhelmed by too many investment options and feel anxious about making the wrong choice, Ms Lee says.
Younger people also generally have less to invest due to commitments such as taking care of parents, starting a family or purchasing a property, she adds.
DBS had a similar observation: People aged 35 to 44 are balancing the demands of raising children, supporting ageing parents and advancing their careers, and so prioritise short-term financial needs over long-term retirement planning.
The bank noted that this age group is also the most stretched among all its customers, with their debts – from mortgages, cars and credit card bills – exceeding their liquid assets like cash and investments.
Their liabilities were 1.01 times their liquid assets, which means for every $100 in liquid assets they have $101 in debts. In contrast, the other age groups had more liquid assets than liabilities.
Mr Foo acknowledges that younger folk may have fears or constraints but says it is important to start early and start small.
“Having a sufficiently long investment horizon of five to even 10 years will help to improve the likelihood of achieving positive overall returns,” he adds.
“Even a $100 investment could actually yield a favourable outcome over time.”
Additionally, “have a diversified portfolio to ride out the associated volatility when it comes to equity investments”.
Ms Lee from GEN Financial Advisory says good investments can be volatile even in the short term.
But those who start early and stay invested are more likely to see “strong returns” as they ride out the market ups and downs, while benefiting from the power of compounding, or money earning more over time, she adds.
Public relations professional Jorge Sng, 25, has been diligently putting $825 every month into four investment plans.
This investment, together with monthly contributions to his CPF, is all the retirement planning he is doing for now.
“I have many decades ahead of me and would like to enjoy my life while I am still young, so detailed planning for retirement is not in my plans, at least up till I am 30 years old,” notes Mr Sng.
Ms Lorna Tan, head of financial planning literacy at DBS, says: “Financial planning does not have to be daunting. It is about taking small, achievable steps to build a more secure future.”
Ms Tan has four money habits for readers:
1. Save regularly and build up cash reserves for emergencies
2. Protect against large medical bills and loss of income
3. Invest regularly over time and diversify your portfolio to grow wealth
4. Generate multiple passive income streams, with CPF as the foundation, to secure a comfortable retirement
- Chor Khieng Yuit is senior correspondent at The Straits Times. She believes in financial education for the masses, particularly the low-income, the elderly and people with special needs.
Join ST’s Telegram channel and get the latest breaking news delivered to you.