Foreign residents living in Singapore have a wealth of investment opportunities at their fingertips, not only within this diverse market but beyond. In this article, we outline some of the main considerations that allow foreign residents in Singapore to make well-informed investment decisions in 2023.
In this article, we’ll look at:
Goals: define your investment objectives
Understand your risk tolerance
The importance of diversification
Types of investments
Currency considerations
Seek advice
Goals: define your investment objectives
Clear, well-defined investment goals are the cornerstone of a successful investment strategy. As a foreign resident living in Singapore, consider what you want to achieve with your investments. For example, are you investing for retirement, children’s (or grandchildren’s education), to buy a home or a combination of these objectives? Your goals will shape your investment strategy.
When setting your investment goals, it's important to establish a time horizon. Examples of short-term goals might include saving for a down payment on a property, while long-term goals could be building a retirement nest egg. Your goals’ time horizon will determine what types of investments you choose and their risk levels.
Understanding your risk tolerance
One of the first steps when investing as a foreign resident in Singapore is assessing your risk tolerance. Risk tolerance refers to your ability and willingness to endure fluctuations in the value of your investments over time. Typically, with higher-risk investments, there’s more potential for higher gains, but also short-term losses.
If you have a long time horizon before you intend to sell or draw on your investments, you can generally afford to take on a higher level of risk in your portfolio. This means you can consider allocating a larger portion of your investments to potentially higher-return, but also higher-volatility assets. Your personality can also help determine how much risk you’d like to take.
The importance of diversification
Diversifying your portfolio across different asset classes (and geographical areas) can help spread risk and enhance your overall investment strategy. By spreading your investments across various asset classes, you reduce the risk associated with individual assets or markets. Some asset types are also thought to have an inverse correlation, so for example, investors may buy stocks and bonds or gold to reduce risk, as generally speaking if one asset class has a downturn, the other improves.
Types of investments
As a foreign resident in Singapore, you have access to a wide range of investment options, including stocks, bonds, real estate and Real Estate Investment Trusts (REITs), mutual funds, Exchange-Traded Funds (ETFs), and alternative investments.
Stocks: Investing in stocks involves purchasing shares of publicly traded companies. Stocks offer the potential for high returns but come with higher volatility.
Bonds: Bonds are fixed-income securities issued by governments or corporations. They pay periodic interest and return the principal at maturity. Bonds are generally considered lower risk than stocks.
Real Estate and REITs: Real estate investments can include owning physical properties or investing in Real Estate Investment Trusts (REITs). Real estate can provide both rental income and potential for capital appreciation.
Mutual Funds: Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. They are managed by professional fund managers.
Exchange-Traded Funds (ETFs): ETFs are similar to mutual funds but are traded on stock exchanges like individual stocks. They track specific indices or asset classes.
Alternative Investments: Alternative investments encompass a wide range of assets, including hedge funds, private equity, commodities, and more. These investments can offer diversification benefits and unique return opportunities.
Diversifying your portfolio across these asset classes can help you achieve a balanced and well-risk managed investment strategy.
It’s also sensible to diversify internationally, spreading your investments across different geographic regions. This reduces your dependence on a single market's performance.
Currency considerations
As a foreign resident in Singapore, you should consider currency risk when making investment decisions. Currency risk arises from fluctuations in exchange rates, which can impact the value of your investments in other countries compared to Singapore dollars if you send money abroad to invest or if you plan to repatriate funds in the future.
To manage currency risk, you can consider currency-hedged investments. These investments are designed to mitigate the impact of exchange rate fluctuations on your portfolio. It’s also possible to lock in favorable exchange rates on future international transfers through specialist currency brokers or instruct only to exchange when a rate becomes favorable.
Seek advice
All investments carry inherent risks, however by considering what you are trying to achieve and seeking advice as to the best way to achieve it, it’s possible to make investments that minimize the risk to levels you’re comfortable with. Financial advisors, wealth managers, and investment experts in Singapore who specialize in providing services to foreign residents will provide valuable insights tailored to your specific needs and goals. They will help you create a customized investment strategy, select suitable investment products, minimize tax, and ensure compliance with regulations for foreign investors.
If you have any questions about financial planning as a resident in Singapore, don’t hesitate to contact us.