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Maximizing Your Annual Investment: Strategies to Grow Your Money for Retirement

For any financially savvy person, managing an annual investment plan is key. Beyond putting aside funds for mortgage, living needs, and other expenditures, there should ideally be a sum of money that you could set aside for investment purposes annually.

Hence, this post will be about what I do on an annual basis with this sum of money. Please take note that the plan is purely based on my investment objectives and needs. Some might not agree with my choices, and that is perfectly fine too. This is not meant to be the gospel truth.

It's important to understand that everyone has a different balance towards their mid term and long term investment objectives. This balance will affect how they prioritise their investment choices.

So here's my plan (in order of precedence).

1) Put the full sum of $15,300 into SRS and invest them

Obviously, a key advantage of putting your cash into SRS is the tax benefit of doing so. Contributions to SRS are eligible for tax benefit. Depending on your income bracket, the exact amount of tax benefits could vary. Personally, I made it an important point to maximise the full tax benefits by investing up to the capped yearly contribution amount of $15,300.

With the funds in SRS, there is a variety of financial instruments which you could invest in. You could use the funds to buy bonds, REITS, stocks and REITs listed on SGX, Roboadvisors, and unit trusts. Personally, I use the funds in my SRS to invest in the S&P 500. If you are curious on how I do it, check out my article here.

Not only do I gain tax savings by investing in SRS, I could also enjoy the potential upside from the investment in the S&P 500. If the expected annual return from the S&P 500 is 9% annually, the return to me will be 9% annual return + the rate in my income bracket. Hence, this is a no brainer to me. I have done this for a couple of years, and certainly see the benefits of continuing to do so for the foreseeable future.

Of course, there is still some slight disadvantage here as early withdrawal of SRS funds are fully subjected to tax and attract a 5% penalty. But hey, this also shows that the SRS funds are fluid in nature and you could withdraw it anytime unlike your CPF funds where your funds in SA are fully locked up. In comparison, putting my funds in SRS and using them for my investment purposes is a much better option as it's a lot more fluid.

2) Invest in my own portfolio

Besides putting my money in the S&P 500 via my SRS funds, I also maintain a portfolio (which I tried to beat the market). For my regular readers, you all should have read the quarterly reviews of my portfolio throughout the years. For an understanding of my portfolio choices, you may refer to this article.

While my portfolio might not have beaten the market yet for the past 2-3 years, I still have confidence it will eventually catch up and hence I am still investing in the portfolio. This year has been promising with a >30% return so far.

In the long term (10 years and beyond), I envision my portfolio to have a CAGR (Compound Annual Growth Rate) of 9% and more. Every year, I expect the funds in my portfolio to grow by a combination of my own annual contributions and a growth rate of 9%. In years when the portfolio grows by more than 9%, I will reduce my own contributions. Similarly in years when my portfolio grows at a rate less than 9%, I will contribute more to the portfolio to make up the difference.

This portfolio is meant for my eventual retirement and it should also be super fluid in case the funds are needed for other investment opportunities along the way. I view this as the second priority for my annual investment funds.

3) Voluntary Top Up Special Account with Cash

If I still have funds left in my annual investment sum after the first two steps, I will do a voluntary top up of my Special Account (SA) with Cash. Most of my Ordinary Account (OA) funds are locked in my property purchase hence I envision that I would have to use my SA funds to hit my Full Retirement Sum (FRS). To hit my Full Retirement Sum early, I would then have to make an annual contribution to my SA.

Not to forget you do also get tax benefit for up to $8,000 cash top-up in your SA. Given that the SA already have a 4% risk-free interest rate, putting your cash in the Special Account is indeed attractive as it achieves two objectives of providing me with tax savings and growing my funds to reach FRS sooner with a 4% risk-free interest rate. Not to forget, you can also use your SA funds to invest in other instruments like some stocks, gold, and T-bills.

Of course, a big down-side to using cash to top up your SA is that it is not fluid at all as you cannot withdraw any money out of your SA until you reach 55 years old. I could understand the objective of only allowing withdrawal at such age as the whole purpose of a retirement account is to fund your retirement needs when you are older. However, I am not so comfortable with locking up my funds in an account for such an extended period of time. After all, who knows what will happen in life? I know the importance of putting money aside for the future, but I think there is always a risk in planning so far ahead in life as there is always a chance you might not benefit from such rigorous planning.

In conclusion, I will always first put my money in SRS funds and invest them before putting the rest of the funds in my own portfolio. If my portfolio is having a good year in particular, I will minimise the contributions to my portfolio and use them to do a voluntary top-up to my Special Account with cash. I typically will also not invest my CPF SA funds.

I once did a poll with my Telegram Group on what are their thoughts on their preferred method to enjoy income tax reliefs and most of the respondents typically max out the limits for their SRS and CPF SA contributions! See the results below.

If you are interested to take part in polls like this, do join my Telegram channel. There are already more than 210 participants in the channel!

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