Part 4 of 4: What I did – Singapore Savings Bonds (SSB)

The bond market in Singapore is not particularly exciting with its limited offerings for retail investors. Since I did not have $250k casually lying around to purchase corporate bonds for my portfolio, my remaining options were retail bonds, government bonds, and bond ETFs. 

Government bond = best bond?

Back in October 2015, MAS launched the Singapore Savings Bonds (SSB) which were government bonds that allow retail investors to enter the bond market with as low as $500. It is fully backed by the government and principal-guaranteed, easy to understand and access, and offers flexibility for redemption with no penalties. 

With practically zero risk, a decent interest rate, low barriers to entry, and no lock-in period, this was a no-brainer for me and I applied for a few issues of the SSBs to form the bond component of my portfolio.

HOWEVER, I have since stopped purchasing any SSBs and WOULD NOT recommend it to anyone in this current climate as the interest rates are no longer attractive. Parking your funds in any high-yield savings account or money market funds would give a higher return and is more liquid.

Alternatively, if you’re the kind that will spend any excess money in your savings account, you can consider fixed deposits which will lock up those funds and prevent you from touching it. Fixed deposits are relatively safe investments that can serve the same function as a bond in your portfolio to reduce overall portfolio risk.

Bond vs. Bond Fund

Investors add bonds to their portfolio for income, capital preservation, or for diversification. Since bond prices typically go up when stock prices go down (though it is not really the case in recent times), there is some downside protection by having bonds in the portfolio.

Investors can choose to subscribe to individual bonds or purchase bond funds (mutual fund or ETF). A bond fund is similar to an index fund whereby you are buying into a basket of bonds instead of stocks in this case. Nevertheless, there are some key differences to both which I will summarise quickly for you below.

  1. Diversification
    Buying a basket of bonds versus buying a single bond can help to reduce your risk by diversification. There is no need to purchase multiple bonds to achieve the same effect which would require higher capital outlay.
  2. Maturity
    Bonds have a set maturity date (or called prior to maturity) whereas bond funds do not as underlying securities are constantly being bought and sold.
  3. Liquidity
    The liquidity for bonds is varied, with larger bonds (eg. US T-bills) having more trade volume compared to smaller bond issues. Bond fund can generally be sold at any time.
  4. Income Payments
    Payouts are fixed for bonds at quarter/semi/annual frequency whereas payouts for bond funds may fluctuate. This may influence an investor’s purchasing decision depending on their investment objectives.

Are bonds really needed in every portfolio?

Although I recognise the role of bonds in a portfolio, I am reluctant to add them to mine as I feel that there is an opportunity cost to doing so. As it stands, the percentage of bonds in my portfolio is <10% even though the “recommended allocation” for me according to age is about 30% bonds.

I am trying to increase my bond allocation for safety reasons but I really don’t see any great opportunities to do so. Like I mentioned above, I think I’m better off placing them in high-yield savings account. If anyone has any advice to convince me or recommendations where I can allocate my funds instead, please share them in the comments below!

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