The Quiet Risk Most Singapore Investors Ignore: Liquidity

Over the past few months, I have been thinking quite a bit about liquidity.

Not liquidity in the financial markets. But liquidity in our personal balance sheets.

This thought came to mind after reviewing a few recent statistics about household wealth distribution in Singapore.

Singaporeans are known to have one of the highest home ownership rates in the world. But what is perhaps less discussed is how much of our wealth is concentrated in property.

And more importantly, how little of it is actually liquid.

The Illusion of Wealth

For many Singaporean households, a large portion of net worth sits inside property equity.

On paper, this looks impressive.

Someone may have:

• $1M property

• $200k CPF

• $100k investments

  
  

This person technically has a $1.3M net worth.

But the reality is quite different.

If we break it down, less than 8% of net worth is actually liquid.

This raises an interesting perspective- Are we actually wealthy? Or are we simply asset rich but liquidity poor?

Why Liquidity Matters More Than We Think

Liquidity provides something extremely valuable.

Optionality.

When you have liquid capital, you can:

• take advantage of market corrections

• invest in new opportunities

• weather financial shocks

• rebalance your portfolio

• 
  

Without liquidity, even a wealthy investor may be forced into bad decisions. For example, during market downturns, investors without cash often end up selling assets simply because they need liquidity. This is one of the biggest behavioural traps in investing.

Property Creates a Liquidity Trap

Property is a fantastic asset class in Singapore.

It has historically provided:

• leverage

• stability

• inflation protection

• 
  

However, property has one major drawback. It is extremely illiquid.

You cannot easily sell 10% of your property to raise cash. You either sell the entire property or you do nothing.

This lack of flexibility creates a structural problem for many investors. Their wealth grows on paper but their financial flexibility does not improve.

A Simple Rule I Like to Follow

Over the years, I have come to appreciate a simple rule when thinking about asset allocation.

Try to maintain at least 30% of net worth in liquid financial assets.

These may include:

• ETFs

• stocks

• bonds

• cash equivalents

  
  

Liquidity gives you the ability to:

• invest during market crashes

• rebalance portfolios

• pursue new opportunities

  
  

This will come in very handy in accelerating your personal wealth, especially in times like this.

The Data Science Perspective

If we think about investing probabilistically, liquidity improves your expected returns.

Why?

Because many of the best investment opportunities happen during periods of market stress.

2009

2020

2022

Investors with liquidity were able to deploy capital at extremely attractive valuations while those without liquidity simply had to watch from the sidelines.

Liquidity therefore acts like an embedded call option on future opportunities. And the value of that option is often underestimated.

Final Thoughts

Property has worked extremely well for Singaporeans over the past few decades. But as our wealth grows, the conversation should probably shift from asset accumulation to portfolio structure.

It is not just about how much wealth we have. It is also about how flexible that wealth is.

Liquidity may not feel exciting. But in investing, flexibility is often what separates good investors from great ones.

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