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Channel Travel Savings Into Your First Investments — How To Get Started

Your holiday plans have been put on hold since early 2020,thanks to Covid. Even with the recent announcements of Vaccinated Travel Lanes, you might still be hesitant to book a trip due to the risks of contracting Covid while overseas. With the latest Omicron variant rearing its head, all bets are off as to how travel arrangements will proceed.

If this sounds like you, there’s a silver lining to all of it. Quite likely, you’ve accrued some savings from funds that you’d usually dedicate to travels. Even if you’ve indulged in more online shopping and a staycation or two, chances are that you’ve got some extra cash on-hand.

You can take this as an opportunity to invest, especially if that’s something you’ve thought about but never got around to doing. It doesn’t matter the size of the investment; you can get started even with a small amount.

If you’re not sure where to start, consider first of all your financial needs and objectives. These will help you determine which timeframe and method to choose for your investments. Here are some ways to dip your toes into investing, broken down according to different requirements.

If you need your cash back soon (timeframe: very short term)

Perhaps the reason why you’ve not ventured to invest previously, is financial commitments. You’ve got loans to pay and living expenses to settle, with little leftover. If you require liquidity in your funds for immediate needs, you could start out with an investment plan with an extremely short timeframe.

One such example would be a fixed deposit account. This is a low-risk form of investment that guarantees interest rates typically higher than what you’ll get from your bank account, so long as you keep your money within for a specified length of time. The period for the deposits can be as short as one month. However, it’s better to opt for a period of at least six months and above to get better rates. You can refer to DBS Bank’s rates for an idea of the kind of interest you can potentially earn.

If you’re planning for an upcoming milestone (timeframe: short term)

A short term timeframe is perfect if you have an upcoming planned expense.  This could be a wedding, property purchase, or paying for your children’s education. If you have a rough idea of when the milestone will be, and can possibly invest the funds till then. Planning in advance will not only ensure that you have money set aside, but also help you grow the savings to finance the milestone when it arrives.

In this case, a short-term endowment plan could be a possible place to park your funds. The idea behind such plans, is that after paying a certain amount in the form of premiums, this sum will be invested and returned to you with relatively fixed profits after a specified duration of time. Sold by insurance companies, it may come bundled with a form of insurance coverage. Usually its main objective is to grow your savings. Returns are higher than fixed-deposits’, while remaining relatively low risk.

Short-term plans range from around three to ten years, and some plans permit you to sink your money in as a lump sum, or over a fixed number of payments.

While endowment plans are generally low risk, still be careful and look out for those that guarantee your capital. Also take note of the guaranteed versus non-guaranteed returns.

If you’re looking to grow your funds (timeframe: medium to long term)

If you’re looking to squirrel away your savings from not travelling and see them grow over the longer term, you can consider investments that benefit from compounding returns. Even if you start with a small investment, the compounding effect can enable your investment to grow exponentially over a lengthy period of time.

A possible option could be to open a brokerage account and buy Exchange-Traded Funds (ETFs), which track a basket of assets. ETFs that track top indexes such as the S&P 500 are known to perform reliably over the long term.

Or, if you would like your investment to be as fuss-free as possible, you could place your funds with a Robo Advisor, and indicate how much risk you’re willing to take on. It will buy into a range of investments accordingly, and automatically rebalance your portfolio when needed. Planner Bee’s comparison of the best Robo Advisors gives an overview of the minimum investment amounts needed, and the kinds of products that they invest in. It also highlights the top Robo Advisors to park your cash at.

If you want to prepare for retirement (timeframe: long term)

Finally, if preparing for retirement is your priority, and you would like to channel your savings towards that, you can place your savings in a retirement account that will grow your income through interest.

A simple way to do this in Singapore is by topping up your CPF Special Account. Intended to help you save for retirement, the Special Account will earn you 4% annual interest, which compounds year-on-year. The amount in your Special Account will eventually form part of your Retirement Sum (together with what is in your Ordinary Account). This then determines how much monthly payout you will receive from age 65.

In short, topping up your Special Account with spare cash as early as you can, will help it compound towards a Retirement Sum that will meet your needs in the future.

Conclusion

Though the possibility of travelling may be uncertain for the indefinite future, you can seize the chance to grow any money saved as a result, through investing. Assess your needs and the timeframe that you’d be willing to commit your money within. You can then take your pick of investment instruments that will grow your travel savings to support you in other enjoyments, even if you don’t step onto a plane anytime soon.

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