Financial planners urge investors to consider other options as T-bills yields lose steam

“Holding cash or investing in liquid instruments is not necessarily the wrong decision,” he said. “Fixed income still has a role for stability, but the common mistake is treating T-bills and SSBs as a permanent home for long-term savings, rather than a temporary parking space.”

The latest SSB offers a first-year return of 1.52 per cent and an average annual return of 2.25 per cent over 10 years. 

Six-month T-bill yields have declined to about 1.56 per cent, a sharp reversal from the higher-rate environment that made these products especially attractive in recent years.

Singapore’s core inflation in June was 1.6 per cent. 

“As T-bill and SSB yields have come down from their peak, this is a good moment for investors to revisit whether their cash-heavy habits still match their actual goals, rather than anchoring to a yield level that no longer exists,” said So.  

Looking at other alternatives 

Chua said the bigger concern is not short-term market volatility, but the risk of failing to build enough wealth because too much capital remains parked in low-growth assets. 

“What we are concerned about is savings erosion in today’s high-liquidity, low-yield environment,” she said. 

Reginald Koh, founder of financial literacy platform The Financial Coconut, said that as interest rates moderate, the trade-off for staying too conservative becomes more apparent. 

Koh noted that returns from cash, fixed deposits, money market funds, T-bills and SSBs are likely to remain lower. If they fail to outpace inflation, investors could see their purchasing power decline over time. 

For investors with longer investment horizons, Dr Aurobindo Ghosh, assistant professor of finance at Singapore Management University, suggested considering a mix of equities and bonds that matches their risk appetite. This could include low-cost, passive investments such as exchange-traded funds. 

However, investors globally tend to under-allocate to equities despite evidence that stocks outperform fixed income over longer periods after adjusting for risk. 

“There are fairly standard personal finance rules with close to 80 per cent in equity over the longer term when one is young, and increasing the allocation to fixed income to 50 or 60 per cent by the time one is close to retirement,” said Associate Professor Anand Srinivasan, head of the department of finance at NUS Business School.

SMU’s Dr Ghosh said one reason is that many investors perceive equity investing as similar to gambling, while assuming that assets that earn around 2 per cent annually is sufficient when long-term inflation is at or above that level. 

“In terms of purchasing power or real rate of return, investors are surely going to lose as their nest-egg will have less purchasing power,” he added.

Still, not doing anything is even worse. One of the biggest mistakes many make, Koh said, is underestimating the power of compounding. 

“One or 2 per cent doesn’t sound like a lot when you are living day to day – but let that compound for decades, it will bite us back,” he said.

For younger investors with limited equity exposure, Dr Ghosh recommended starting with a diversified passive equity portfolio, such as an exchange-traded fund tracking a broad global index. Direct stock-picking, he said, may be more appropriate for more experienced investors.

“Different pundits would have different recommendations, some academic research suggests that equal weighting on different broad based asset classes like stocks, bonds and government securities might not be a bad idea,” said Dr Ghosh. He added that these are not investment recommendations, and individuals should seek professional advice based on their circumstances. 

DBS’ Chua suggested investors think about portfolios in three components: a defensive sleeve, an income sleeve and a growth sleeve.

Singapore investors, she added, already have a strong defensive foundation through the Central Provident Fund, which provides guaranteed interest rates of 2.5 per cent for the Ordinary Account and 4 per cent for the Special Account.

Providend’s Chan echoed this view, saying that building up CPF balances through working contributions and top-ups can “create a very strong base for wealth in retirement”.

Some also see selective opportunities beyond traditional portfolios.

Chua said investors could also consider a modest allocation to alternative assets such as gold as part of a diversified portfolio.

SMU’s Ghosh said it may also be a “good time” to buy corporate bonds to lock in higher yields before interest rates fall further.