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4 Jan 2021
Since the start of 2020, our country has been reeling from the COVID-19 outbreak. This led to the unprecedented 2-month circuit breaker period, with schools closing and work-from-home mandated for many workers to limit the spread. We also suffered economically, heading towards the deepest recession on record as well as coping with rising retrenchments.
For those of us in our 20s or early 30s, this is the first time we have experienced a major economic downturn since entering the workforce. Many of us may be worried about losing our jobs while others could be afraid to invest after seeing markets turn volatile, choosing instead to focus on our immediate short-term concerns.
Of course, this is not the first time older Singaporeans face a crisis. Back in 2008 and 2009, Singapore was the first East Asian country to slip into recession due to the Global Financial Crisis (GFC). Those who are older will also remember the 2003 SARS crisis and the dot-com bubble of 2000.
To better understand how we can manage our finances during a recession, we spoke to three Singaporean professionals on their experiences managing their financial situation during the 2008/2009 recession.
Timothy Ho (Tim): Thanks for agreeing to this interview. 2008 was the first economic crisis that you experienced as a working adult. Were you affected by it?
Gabriel Tan (Gabriel): I was in my late 20s then, working for a boutique investor relations firm in Singapore. Job security was not the main concern because the firm was a well-run outfit, but outside the office doors, the world was changing.
You read all sorts of troubling news in the newspapers -- people went bankrupt because they used margin financing, the management at listed companies had to sell their pledged shares after prices collapsed, people I knew lost their jobs, and the stock market tanked. We needed to do a lot of handholding with clients and provide advice on how to talk to worried investors, so I saw it all unfold from a ringside view.
Tim: Did the 2008 Global Financial Crisis (GFC) change the way you approach your career and financial matters?
Gabriel: Before 2008, Singaporean stocks were gangbusters. We were at the peak of a bull market and it felt like the good times would never end. We were always dining out and going to parties. It just felt like you would keep making money throughout your work life.
And then the financial crisis occurred, and it shaped my perspective towards risk and investment.
It made me bolder in a different way. Many Singaporean ministers used to say that Singaporeans need to be more adventurous and head out. Benefitting from a world-class education, we can easily migrate to other cities and bring in a valuable perspective acknowledged by people from the East and the West. Take your skillset and versatility to different cities and you can accelerate your career.
That is what I did a couple of years after the financial crisis and I have since worked in many markets. Over the last decade, I have worked in Cambodia, Malaysia, China, and Hong Kong.
Tim: Were there regrets over any of the financial decisions that you make or didn’t make at that time?
Gabriel: I was not investing back then. I started investing only in my 30s after the 2008 GFC, but I could have started investing earlier. Still, starting your investment journey in your 30s isn’t too bad, so I am glad I started investing after that. But if I had dared to invest at the bottom of markets during the financial crisis, I would have done better.
Tim: If you could turn back time, what are some financial advice you would have given your younger 2008 self?
Gabriel: Looking back, what impresses me is how many CEOs did not give up and continued to run their businesses well. Not only did the share price for most companies recover, but the world economy went on to experience a bull market.
When I was ready to invest, I decided to employ a conservative investment strategy that has served me well. Inspired by The Psychology of Money by Morgan Housel, I agree that you cannot let money stay idle. If you don't invest in the market, then inflation will kill your dreams.
Right now, one-third of my portfolio is mostly in index funds and ETFs focused on the US and China markets, as I believe they will remain the growth engine for the world. Another third is invested in Singapore ETFs that invest in a basket of REITs. It is my belief that Singapore will continue to be a place where people will want to invest and stay for the long term.
The remainder is the safest part of my portfolio and invested in money market funds that yield about 2% annually. Now that there are so many robo-advisors allowing you to invest at low fees, you have less of an excuse. It is a lot easier compared to what it was in my early 20s.
Whenever I get my monthly salary, I split the amount I want to invest equally in these three baskets, allowing me to sleep soundly at night and still benefit from economic growth.
I would advise my younger self to invest in financial markets with a well thought-out strategy and to invest in himself.
Tim: Some Singaporeans may be reluctant to invest during this volatile period. What is one advice you would give them?
Gabriel: My fellow Singaporeans may not realise it but we are better positioned financially than many others in the world. I am a big believer in maximising your CPF. For most people who have a good career and do not need to fully use their Ordinary Account (OA) to pay for a flat, it is best to maximise your CPF savings by transferring it to the Special Account (SA), so as to earn higher interest.
Of course, there are other ways one can secure their retirement. Investing in myself, acquiring world experience and having a well-planned investment portfolio covering certain markets works for me. When the market fluctuates at night, I am not concerned. It helps as well that I know my CPF savings are safe so that it acts as a safety net for me during retirement - even in the worst case scenario if my investment portfolio doesn’t pan out.
The financial crisis in 2008 was a shock like no other in my life. This year is eerily similar, although stock indexes have not fallen by as much. I still believe, however, in the potential for wealth creation and advocate investing wisely in stocks.
Currently in his 50s, Paul Wee is the Managing Director for FinTech at the PropertyGuru Group. A father of two teens, Paul has worked mostly in the financial sector throughout his career.
Tim: As someone who was working in a bank during the 2008 GFC, you saw the banking crisis unfold right in front of you. Was the mood similar or different in 2008 compared to earlier recessions such as the 2000 dot-com bubble and the 2003 SARS crisis, which you also experienced?
Paul Wee (Paul): The SARS epidemic may have affected all of us then; but I also remember that it was over a short period. I don’t remember seeing significant job losses during that time as well.
The Dot-com bust saw many investors throw up their arms in frustration as they saw the value of their investments plunge, but again the economy (as I remember it) remained substantially unaffected.
During the GFC, however, we saw 2-3 major waves of retrenchments, affecting even companies I perceived to be “iron rice bowls”. I had clients and friends who were shell-shocked at losing their jobs. This was what was different; the widespread impact on jobs that the GFC had on many.
Tim: Being a father of two young children back in the 2008 GFC, what were the concerns that you and your wife (who was also working in a bank then) had?
Paul: One important thing that my wife and I have always considered, even today, is the degree of CONTROL we have in any given situation. We have a limited sphere of control on whether we continue to be employed, but I remember scrutinising our expenses and deciding to reduce our discretionary spending, in order to ensure we had sufficient savings to tide us over any potential job loss. Other than that, we continued to live normal lives. If anything, the GFC helped me focus even more on doing my job well.
Tim: As someone who has experienced multiple recessions, were there any financial decisions you made or didn’t make in 2008 that you regret?
Paul: We also saw the meltdown in the equity market then and I had made up my mind to invest in a few stocks I had picked, one of which was AIG, which had then fallen to about US$1. I was sitting with someone whom I respect a lot and he advised me not to do that. Today the share price is about US$40+; I had wanted to invest US$10,000! It was certainly no fault of my friend, but my heart still aches thinking about it today!
Tim: We know some Singaporeans may be reluctant to invest during a recession. What is one advice you would give them?
Paul: For Singaporeans who are worried about their finance and retirement during this period, one thing which we can count on would be our CPF savings. Our CPF monies are protected against creditors and will continue to earn us a risk-free interest rate. Also, if we wish to grow our retirement nest egg, we can transfer funds from the Ordinary Account (which yields a return of up to 3.5%* p.a.) to the Special Account, which pays a higher interest rate of up to 5%* p.a. Compounding this yield would give us significantly higher return and help us accumulate more for our retirement.
Currently in her 40s, Chenise Lim is the Wealth Advisory Director at Financial Alliance. Back in 2008, she was pursuing her Master of Business (Financial Planning) while concurrently working.
Tim: As a financial planner during the GFC in 2008, were many of your clients facing challenges?
Chenise Lim (Chenise): During the 2008 GFC, many of my clients’ investment portfolios were affected by the sudden drawdown in value. My work was not really affected since my client engagements were based on comprehensive financial planning arrangements. There was a balanced spread of buffer created for their ongoing commitment in their cashflow management. However, I did spend quite a lot of time explaining and walking through with them on the strategies moving forward.
While there were clients who preferred to take a standstill approach during that period and wait for the recovery, there were also many who took the opportunity to stay invested and increase their investment exposure.
Tim: At that time, did you choose to make any deliberate financial decisions for yourself?
Chenise: I have always believed in the importance of financial planning and setting a reasonable timeline for milestones we want to achieve. With that, I was able to buy my first property in my 20s, paid off my education loan and during the 2008 GFC, took some time to further my studies and plan towards the upgrading of my property. With the excess funding from the property upgrading, I could also put aside more money to invest and build my portfolio.
Tim: How can Singaporeans best utilise their CPF accounts to help them with their financial plans during this uncertain period?
Chenise: The CPF system provides a safety net for many Singaporeans and PRs and it is important to plan accordingly. Often, if one drains out their OA savings for housing, this may result in lower or even insufficient retirement income if they do not save enough on their own if a large part of their CPF is used for housing.
With proper planning, our OA can create a buffer for ongoing housing instalments in the event of a crisis period – such as the one we are currently facing. We should leave a balance in our OA instead of fully using it for housing or investments. This way, we also utilise compounding interest to complement the growth of our savings.
When the market is challenging such as in 2008 and 2020, our SA interest rate has remained unchanged, and generally our CPF has granted us the certainty in saving for our retirement.
One of the key takeaways we extracted from our conversations with the three individuals was how they viewed the recession not as a time to shun important financial or career decisions, but to pay closer attention to it.
At the same time, even for those of us who might have higher risk tolerance, a recession isn’t an excuse to just go out there and invest as much as we can, with the assumption that any investments we make will make us money.
For example, while both Gabriel and Paul wished they had invested more during the 2008 GFC, they also recommended using CPF to continue growing our retirement nest egg during this period, especially for risk-averse Singaporeans. Our CPF Special Account (SA) can earn us a risk-free interest rate of up to 5%* per annum.
As an experienced financial planner, Chenise understood that a recession is part of the financial planning journey that we face, and we need to build a personal portfolio that can withstand the ups and downs of the financial market.
An individual who started working in 2000 would have encountered four major recessions by now (2000 dot-com bubble burst, 2003 SARS crisis, 2008 GFC, 2020 COVID-19 pandemic). This means that while no one can predict when and how the next recession will occur, we should be mindful that we do not get caught out when a recession does occur. Our financial plans need to be built to withstand these recessions.
Our CPF accounts can help safeguard our financial plans even during a recession. By having a buffer in our CPF Ordinary Account, we can utilise it to pay for our homes if our cash flow is tight. Our Special Account also grows at a risk-free rate of up to 5%* p.a. - and this helps us accumulate more for our retirement even during a recession.
Finally, let’s not forget our MediSave funds, which can help us cover healthcare-related expenses, both during our working years and in retirement.
Even though 2020 might be an unprecedented year, the same financial principles that we abide by should remain. We should continue to save, invest and plan for our future.
Learn more about how you can kickstart your retirement plan and maximise your CPF savings here.
*Includes extra interest. Members who are below 55 years old are paid an extra interest of 1% p.a. on the first $60,000 of their combined balances (capped at $20,000 for OA).
This article was first published on DollarsAndSense.sg.
Information in this article is accurate as of December 2020.