What's a fitting way to end yet another challenging year? We take stock, wrap it up, and start afresh.
A year that beckoned great challenges and opportunities alike, 2021 has been an unpredictable ride.
COVID-19, in particular, has left a negative impact on retirement systems all across Asia due to reduced contributions, lower investment returns, and higher government debt.
The good news is Singaporeans largely have done well to bounce back. The financial health of majority of the country's residents at the end of 2020 has improved, and the economy is on track to recovery.
Before we close the year, it's timely to take stock of your finances and make some financial recalibrations to begin 2022 on a fresh slate.
Here are some moves to consider:
1. Review your assets and savings
Look back on your expenses, savings, and debts for the year. Did you spend more on items you previously wouldn't have because of the pandemic? Or did you manage to save more? What were some of the good habits you should carry over into 2022?
It may be a good time for a financial reset – to look for more ways to incorporate discipline and greater savings into your financial lifestyle.
One way to start 2022 right is by getting ready for tax season. Reduce taxes – and add to your savings – by topping up your Central Provident Fund (CPF) Special Account. The sum you contribute will be deducted from your chargeable income, up to S$7,000. This can be reduced further if you perform a top up for your family members as well, also up to S$7,000. More than just offering tax relief, contributing to your CPF can help you put away more money for retirement.
Complement this with Supplementary Retirement Scheme (SRS), which is designed for greater long-term savings. By making a voluntary contribution to your SRS account, you can deduct the sum from your taxable income by up to S$15,300.
2. Review your investments
In times of volatility, Ms Fera Wirawan, Head of Investment Consultant (Private Wealth) at Maybank Singapore, advises investors to keep their eyes on a key goal: Capital preservation.
"A sound portfolio should track returns which corresponds to the individual's stage in life and generate total returns to meet the needs of the individual's lifestyle and liabilities," she said.
What would be "dangerous" for investors to do is to benchmark the performance of their portfolios against equity indices against equity indices such as S&P500 and STI.
Pointing to how the S&P500 plunged 34 per cent and 53 per cent from peak to trough during the COVID-19 and the Global Financial Crisis respectively, and proceeded to produce stunning post-crises returns, Ms Wirawan believes "we have to be cognisant of behavioural biases present in all of us". This refers to the tendency of keeping the losers and selling the winners, which could detract an investor from achieving index-like returns.
"It is crucial that investors consider their risk appetite and take on risks that commensurate with returns they require from their portfolio. This would allow them to have better discipline in adhering to their investment objectives in times of volatility."
The world after COVID-19 is envisioned to be more inclusive, resilient, and sustainable. Companies with a strong vision, corporate governance and environmental awareness have shown great promise and should form a significant part of one's portfolios. Investors should also look at bright spots of growth, driven by themes such as digitalisation, artificial intelligence, and robotics, with cybersecurity emerging as a necessity.
If you are going through a major milestone in life, it may be worthwhile to think about rebalancing your portfolio in a practicable and thoughtful manner. For instance, if you are about to retire, adopting a more conservative approach to your portfolio can help protect your capital.
Her advice for investors in 2022? "We believe that the economy is currently at mid-cycle phase which historically was the longest phase with moderate growth. It is therefore important for investors to stay invested in a diversified portfolio, with an eye for sustainable investments," said Ms Wirawan.
3. Spend wisely and self-care
Christmas, the season of giving, is around the corner. Don't forget to celebrate your accomplishments amid a stressful COVID-ridden year by spending on yourself.
But as always, avoid impulse buying by setting a budget and make sure you are still maintaining a minimum of three to six months of emergency funds. (If you haven't, it's time to start).
Lastly, make time for your loved ones, no matter what time of the year it is.
the bottom line:
Round off 2021 by wrapping up your financials the right way so you can start the new year with greater financial peace of mind.