Some background info:

  • 23 years old, still schooling in university
  • I have emergency funds, health insurance, 0 debt (Except yearly insurance payments)

I am not looking to start into index ETFs as I feel the market is overly optimistic right now. What investments then, would be optimal to me for safe returns?

I would prefer low risk but steady returns without active management needed either in US or SG(Singapore) markets. Seems to me that bonds are the way to go but this is where I need advice.

Any tips would be appreciated, Thanks in advance!

  • I just want to confirm, based on your comments, that you know bonds are debt instruments? – quid Apr 29 '17 at 1:23
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    @quid yes I do. I am essentially lending out my $5000 and receiving interest payments for the term of the bond and am fully aware of default risks. Thank you for checking! – MH.Q Apr 29 '17 at 8:25
  • Invest in the stock market. – NuWin May 1 '17 at 0:16

At 23 you are thinking of investments and are also fairly clear on what you want, which is indeed commendable.

As you have correctly decided (with your boundary conditions) bonds, bank fixed deposits and debt based MFs should be your prefered investment vehicles.

One suggestion would be debt based mutual funds with a portfolio of a mix of medium to long term corporate/sovereign debt (good rating, like AAA etc), with no lock in period, if you can keep the money invested for 4-5 years.

For anything shorter select a debt oriented MF with a mix of short to medium term corporate/sovereign debt, again with no lock in period.

I mention no lock in period because going ahead you will have options to liquidate the low risk investment and go for slightly higher risk whenever you choose.

EDIT 1: This edit is relation to your comment. (this should be a comment but is getting a bit big)

I agree with you to an extent on the credit rating part, however, that is my personal opinion only. I have personally seen a debt fund investment go down by 10% on account of a corporate debt write down. However, if you look at some good fund houses and analyze their 1month, 6 month, 1 year, 3 year comparative return for some debt funds and also compare them with the category average you will get a fair idea of its performance. In addition, if you also look at the fund manager's performance on other funds you will know the stability of the fund. Another option is to look at sovereign/gilt oriented funds, govt. debt is slightly more stable but returns slightly less.

However, with your age and timeframe available for investment, I think you could take the slightly higher risk of corporate bond oriented MFs.

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  • Thank you for you opinion. I watched the documentary "Inside Job" and am very discouraged by how the events unfolded as well as how they were resolved. In your opinion, do you think the credit ratings are still dependable? I am not very confident of debt based financial instruments because of that. That is to say, i rather look at the underlying investment and decide for myself rather than trusting the credit ratings, which by the way still has not changed in the way it works during the 2008 crisis – MH.Q Apr 28 '17 at 7:58
  • @MH.Q, refer to my edit in the answer. – Ironluca Apr 28 '17 at 8:19
  • If a single corporate debt writedown results in a 10% fall in NPV of a fund, then even without knowing much of the specifics, no matter how you slice it, that fund was way over-invested in that particular company's debt. If a fund invests, say, a maximum of 5% (which is already quite high; 2-3% would be more reasonable) in any one company, then even a 50% writedown by that company results in a loss of 2.5% or less for fund investors, and a total bankruptcy and 100% writedown means it falls 5%. – user Apr 29 '17 at 14:33
  • @MichaelKjörling, I think we are talking about different markets and regulators. I actually lost 10% in a single day, read this news article: economictimes.indiatimes.com/markets/stocks/news/… – Ironluca May 2 '17 at 5:52

Good for you, really nice work.

With your specific criteria I would look into Bond funds. Contrary to stock funds, you should avoid index bond funds, see this article for details and some good picks for low cost and high yield funds.

Along with this I would question your (or anyone's) ability to time the market. A person, who I respect as a financial person, told me to get out of the market in 2014 and put my money in cash and wait for the crash. They were sort of correct for 2015 (the market was mostly flat), but I would have missed out on 2016 and so far 2017. For the record one of my funds was up 30% last year.

For this reason, I would ask you to read any of John Bogle's books. Look into asset allocation. Perhaps 50% in equities, 50% in bonds at this point in your life. A really good case can be made that this market has a long way to run prior to a correction.

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    Good point about timing the market! – MH.Q Apr 28 '17 at 16:52
  • 23 years old, still schooling in university
  • I have emergency funds, health insurance, 0 debt (Except yearly insurance payments)

I can understand that $5,000 seems like a lot when you're still in school and early in your career. I can also understand feel like the market is overvalued right now, since I'm getting that same feeling too. However, similar to what @Pete B. said, you never know what the market will do.

You're young, you have an emergency fund, and you have no debt. Now is the time to take risks. That $5,000 isn't really all that much in the grand scheme of things. Assuming you can continue living if you should suffer some loss of principal (i.e., you won't deplete your emergency fund), I would go ahead and invest it in a fairly aggressive portfolio.

I would recommend reading a couple books on picking funds and ETFs (pretty much anything by William Bernstein, or by Jack Bogle as @Pete B. recommended). They'll give you an idea of what kinds of funds might be good and what allocation percentages to consider. I see that you're located in Singapore, so the exact funds you end up picking will likely be different than what Bernstein or Bogle will recommend, but I'm sure you can find similar ones where you are.

Also, I have no idea what kinds of retirement investment vehicles exist in Singapore, but if you were in the States, I'd also suggest putting some of that $5,000 in a Roth IRA. There, it can grow and compound over time, and you can withdraw tax-free in retirement.

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  • Thanks for the tip about retirement funds! just as a fun fact, we have CPF contributions by both employee and employer which is some sort of a mandatory contribution if you are an employee in Singapore! So I guess that will be for when I enter the workforce in a years time :) – MH.Q Apr 28 '17 at 16:55

"23 years old" and "I am not looking to start into index ETFs as I feel the market is overly optimistic right now."

It's never too early to start trying to time the market, is it. (Sarcasm intended.)

You haven't said how long your investment horizon for this particular $5000 is. Is it the beginning of your retirement savings? If so, then follow the standard portfolio asset allocation strategy starting now, without regard for whether you think that this very instant, as opposed to next month, or next quarter, or next invert-teacup-Bollinger-band-cross-switchback pattern is the "right" time or the "best" time to start putting money away which will remain invested for 50 years. It is.

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