Looking To Overcome Inflation But Worried About Investing? Why Bond Products Could Be A Simple (Stop Gap) Solution In This Volatile Market

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Most of us residing in Singapore have most likely already felt the results of inflation at this level. According to Singapore’s shopper value index (CPI) information from the Department of Statistics, general inflation hit a 14-year excessive of seven.5% in September 2022. These affected main classes of products and companies that embrace 1) Electricity, LPG & Gas, 2) Food, 3) Services, 4) Private Transport, 5) Retail & Other Goods and 6) Accommodation.
What could also be of better concern is that inflation doesn’t seem like it’s going away. If something, inflation remains to be on the uptick. In the chart beneath (by MAS), we are able to see that the inflation charges (for each CPI-All Items Inflation and MAS Core Inflation) have climbed steeply in latest months.

Source: Monetary Authority of Singapore (MAS)
To fight this runaway inflation, central banks globally have been elevating rates of interest at an unprecedented tempo because the begin of the yr. Taking reference from the U.S. Federal Reserve (Fed), a complete of six fee hikes have been introduced in 2022, adjusting the benchmark rates of interest from 0% – 0.25% in March all the way in which to three.75% – 4.00% by November 2022.
All this simply implies that we’re nonetheless more likely to expertise heightened inflation within the foreseeable future.
We Need To Beat Inflation…But The Financial Markets Look Scary To Invest In
Many of us might have additionally come throughout well-intentioned recommendation to beat inflation by placing our cash to work more durable. What’s indeniable is that inflation eats away at our purchasing energy by diminishing the worth of our financial savings.
What is much less simple is how we are able to go about beating inflation. Investing on our personal, particularly if we would not have the experience or time to watch our investments, can imply dropping rather more than the hefty chunk inflation would have taken out of our financial savings.
A widespread technique for much less savvy traders is to take a look at a globally diversified portfolio, resembling ETFs that monitor the S&P 500 Index or the MSCI All Country World Index (ACWI). For the uninitiated, the S&P 500 Index includes the five hundred largest and most liquid firms within the U.S., whereas the MSCI ACWI, with practically 3,000 constituents, is designed to characterize the efficiency of large- and mid-cap shares throughout 23 developed and 24 rising markets.
In brief, these funding merchandise are designed to guard you from making poor particular person funding choices whereas additionally enabling you to earn a market return.
But traders are understandably jittery about placing their hard-earned financial savings within the markets proper now, even in well-diversified investments, not to mention riskier ones. Looking on the two examples we used above (the S&P 500 Index and the MSCI ACWI), we are able to see that costs have been extraordinarily unstable up to now yr, with a one-year return of -16% and -17%, respectively.

Screenshot taken from Tiger Brokers app
Moreover, a recession could be looming on the horizon. Many firms have already begun cost-cutting measures to guard their money reserves amid a slowing financial system.
Read Also: Why Jeraldine Phneah Believes That Every Millennial Needs To Care About Their Investment Journey
Why Investing In Bonds Can Be A Good Portfolio Diversifier
Just as a result of the inventory market has been extraordinarily unstable as a consequence of persistent uncertainties over geopolitical tensions doesn’t imply we should always go away our cash idle in a financial institution financial savings account. We can nonetheless earn passive earnings by investing in bonds because the inventory market stabilises.
On high of having fun with a sure diploma of shelter from the volatility of the inventory market, we are able to additionally count on higher returns if rates of interest proceed to rise.
However, bonds usually are not with out dangers. When we spend money on a single bond, we’re subjecting ourselves to pointless credit score danger – the danger of the corporate’s failure to fulfill its obligations to pay us. Individual bonds usually tend to be affected by rate of interest danger due to the inverse relationship between bond costs and rates of interest.
An extra barrier for a lot of retail bond traders may very well be the massive funding required for particular person company bonds (i.e. a minimal of S$250,000).
We can bypass these constraints by investing in a bond fund that gives diversified bond publicity. This helps to take away our fear over any particular person bonds. Moreover, the minimal funding quantity for such funds is usually decrease than the minimal funding for single bonds.
Unlike investing in a single bond, there’s normally no maturity date for bond funds. Whenever a person bond throughout the bond fund matures, the proceeds can be reinvested into a brand new bond.
This act of reinvesting in new bonds might trigger the costs of bond funds to understand and depreciate to replicate the altering rate of interest atmosphere. Some traders might not want this danger of unpredictability and will as a substitute need extra certainty over their funding returns.
The excellent news for these traders is that we are able to now get pleasure from the most effective of each worlds. Exclusively obtainable on Tiger Brokers, the United Fixed Maturity Bond Fund 1 offers us publicity to a diversified bond fund, whereas providing a set maturity of three years.
Investing In United Fixed Maturity Bond Fund 1
As you could have guessed from its identify, the United Fixed Maturity Bond Fund 1 is 1) managed by UOB Asset Management (UOBAM) and a pair of) affords traders a  fastened maturity bond fund product.
The United Fixed Maturity Bond Fund 1 has a 3-year lock-in interval. This means you’ll solely obtain your capital and coupon funds as a lump sum upon maturity. The Fund additionally has a low minimal funding quantity of S$1,000, making it appropriate for all sorts of traders.
The distinctive function of the United Fixed Maturity Bond Fund 1 is that it permits us to have extra certainty on the returns over the funding interval, however with out the danger that’s related to single bonds.
We get to get pleasure from an indicative weighted common yield to maturity of as much as 4.95% * on the United Fixed Maturity Bond Fund 1 by holding it for its complete 3-year length. At the identical time, traders searching for common earnings additionally obtain half-yearly dividend distributions price as much as 3.5%*.
What this implies is that if we make investments S$10,000 within the bond fund, we get S$175 each 6 months (or $350 a yr) for the subsequent three years. Once the United Fixed Maturity Bond Fund 1 matures on the finish of three years, we should always obtain in complete inclusive of dividends the next quantity than our funding (of as much as S$11,485), which ought to translate into an general return of as much as 4.95%* every year on the funding.
On high of the truth that the United Fixed Maturity Bond Fund 1 holds a diversified bond portfolio, it additionally solely has publicity to investment-grade bonds. This makes the probability of those bonds defaulting low (traditionally, lower than 1%**), which provides to the safer nature of this funding alternative.
Tiger Brokers additionally won’t be charging any administration charges for the United Fixed Maturity Bond Fund 1, which places more cash into the arms of traders on the finish of the day. While related charges and expenses will nonetheless be forked out from the underlying sub-funds, the indicative returns talked about above already bear in mind this price.
Investors can subscribe for the United Fixed Maturity Bond Fund 1 between 14 and 28 November. To give traders much more returns, Tiger Brokers is providing a 15% cashback for 10 days if you spend money on the bond fund. For instance, if we make investments S$10,000, we’d stand to earn about S$40 – which will probably be deposited into our Tiger Brokers account 10 days after the inception of the United Fixed Maturity Bond Fund 1.***
Interested traders can subscribe utilizing the Tiger Trade app. To discover the United Fixed Maturity Bond Fund 1 on the Tiger Brokers app, you’ll be able to:

Step 1: click on on the “Quotes” tab on the underside of the display screen;
Step 2: click on on the “Funds” tab on the high of the display screen; and
Step 3: subscribe to the United Fixed Maturity Bond Fund 1

This unique provide is offered for a restricted time period (14 to twenty-eight November 2022), so seize this chance whereas it lasts!
Read Also: Tiger Vault: 6 Things You Need To Know About This Latest Cash Management Account When Investing Through Tiger Brokers
* Based on 4.95% p.a. indicative returns, as of three Nov 2022, precise quantity may differ.
** Source: S&P Global Ratings – 2021 Annual Global Corporate Default And Rating Transition Study (April 2022)
*** Terms and situations apply


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