Thursday, 1 October 2015

Thoughts about Singapore Savings Bond (SSB)



I have finally completed the continuous test since March… Only things left to complete my course are checklists and group projects. This also means more time to read and write more posts.

So as the title of this post suggest, it’s time to think about the efficiency of Singapore Savings Bonds because of all the hype in the last couple of months.


On 28th Sept, the MAS released the results of the 1st issue of SSB. As the numbers suggests, it was not as well received as expected. Only 34.8% of the maximum amount offered was applied for and only 98.7% of that was allotted.

There will be many reasons about the poorly received issue but the question we need to ask is this… How many of us (who have financial knowledge) would be willing to apply for the bonds or would suggest our family members to participate in it?

1)      Let’s assume you invested $10,000 into the Oct 2015 issue and after 10 years at Oct 2025, you would have gotten back $12,691. That’s a whopping 26.9% increase which is equivalent to 2.69%pa. (This is using the interest calculator on the SSB website http://www.sgs.gov.sg/savingsbonds/Your-SSB/Calculator.aspx )

2)      Let’s assume your friend invested $10,000 into Singtel or Starhub (2 of the country’s biggest telco) in Oct 2015 and after 10 years at Oct 2025, your friend would have gotten back $14,500. That’s a huge 45% increase which is equivalent to 4.5%pa after the same time frame. (I used a standard dividend yield of 4.5% for this example, assuming the dividend remains the same throughout the 10 years)

Wait just a minute before you start scolding me, and read to the end…

This is just a simple exercise to illustrate why people should not bother looking at SSB. While it is true that the stock price of a company fluctuates, are you willing to sacrifice the extra 1.81%pa just so you can be assure of the capital and the flexibility to exit the position? If so, the following questions will help clarify things for you.

1)      Do you think these 2 companies will not be around after 10 years?
2)      Do you think your phone bills will be drastically decreased anytime in the next 10 years?
3)      Do you think the stock price of these companies will stay as they are?
4)      Do you think the companies will attempt to drastically decrease the dividend yield?

While nothing is for certain in the stock market, those who manage their money well are the ones who will survive in this world.

Those who are financially savvy would have realized that this SSB is not as good as it sounds. And there are only so many reasons a country would issue bonds (if you cannot think of 1, relate to why a company will issue bonds and apply the concept to a country…).

I’m also not saying I would not invest in bonds. But I prefer to take a more serious look at it when the interest rates that are offered increase to a higher level.  

These are just my personal opinion.


Investing Wolf 
Disclaimer: This is not a recommendation to buy or sell any mentioned stocks or securities in this blog. 

No comments:

Post a Comment