Making wise choices about your finances

Singapore

MORE than a year on, the Covid-19 outbreak continues to present challenges for people and the global economy.

At an individual level, it has not only forced us to re-think how we live, work and play but at times, raised anxiety over job security.

On a macroeconomic level, governments around the world are working in overdrive to keep their economies afloat through unprecedented stimulus measures.

Meanwhile, many companies have had to re-examine their business models as well as accelerate their digitisation plans.

The pandemic also brought about an end to the bull run that was in play since the Global Financial Crisis in 2008. It presented an opportunity for many retail investors, who took the market correction as a buying opportunity for equities. The sharp sell-off and subsequent volatility in stock markets also led others to embark on their investment journey.

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When comparing data from the first two months of 2020 with figures from a year later, DBS observed a four-fold increase in the number of retail investors who are now invested in global equity markets. Similarly, CDP account openings with the Singapore Exchange grew by more than 2.5 times during February-July 2020 than in the same period in 2019.

The fear of job loss and an extended economic downturn have also resulted in more individuals placing a higher priority on holistic financial planning.

Instead of putting retirement - a long-term financial goal - on the back burner, being able to retire well weighs significantly on our customers' minds. They are now more conscious about how much of their funds they should commit to for the long term.

Our data also indicated that almost half of our retail customers who are invested have holdings in retirement schemes. We expect the pool of customers who invest to increase, as more will come forward to capitalise on current market opportunities in order to counter inflation and longevity.

While these are encouraging signs that more are diversifying their portfolios, it also means more investors have a higher and wider exposure to market risks than ever before.

In some cases, this might be compounded by the socialisation of trading or by solely following self-styled investment gurus. While they might provide new perspectives or discuss stocks rarely covered by mainstream sources, it wouldn't be surprising if many first-time investors look solely at these sources for information.

The matter here has little to do with these sources itself but is more about whether retail investors make investment decisions only after fully understanding their risk profile and risk appetite and consult professional sources of information.

All investors must also fully comprehend the risks that each investment solution carries, especially as uncertainty (and consequently, market volatility) from the pandemic remains.

DBS customers without guidance typically invest S$3,000 a year. However, customers who are guided by personalised recommendations in DBS NAV Planner - a digital financial and retirement advisory tool - invest more than double of that, at around S$7,500 a year.

As DBS NAV Planner users have a better understanding of their risk profile and appetite, they are also able to invest their excess cash savings more adequately than others. While we were reasonably sure of this logic before, we now have data substantiating the fact that our customers need and are enabled by a guided advisory framework.

All investors want to make more precise and better-informed decisions with their money. This guided us to launch the ''Make Your Money Work Harder'' feature within DBS NAV Planner in April 2021. Through this, customers are able to receive advice that leverages artificial intelligence (AI) models to provide precise and right-sized investment recommendations.

They only need to answer five key questions to assess their investment profile, all done in accordance with regulatory safeguards.

A digital advisory tool like this can be used to help customers remove guesswork along with investment biases, which in turn, widens the pool of investment solutions suited to them.

It can help customers uncover blind spots too. Our customers in Singapore have about half of their assets under management in CPF and SRS funds and such tools might draw attention to using funds from these schemes for investing.

Much of this is due to industry-wide collaboration between the public and private sectors in Singapore. Through the Singapore Financial Data Exchange (SGFinDex), individuals are able to have greater clarity of their financial health and plan their finances holistically.

When individuals consolidate their bank accounts through SGFinDex, their CPF and SRS holdings naturally become part of the consideration when funding their investments. At DBS' end, we have observed more customers coming forward to invest their CPF or SRS savings since the advent of SGFinDex.

Education is key

Public and private sector players in the finance industry were already working together to advocate financial/retirement planning (including personal investing) prior to the Covid-19 outbreak.

But the pandemic has served as an important reminder that in order to prepare for a sustainable financial future, rigorous and prudent financial planning should be a way of life for everyone.

There are a number of ways financial institutions like DBS can play a role in helping customers meet their financial planning objectives.

The first is to produce deeper, more personalised insights that our customers would be able to benefit from. This, we believe, also helps customers optimise their investments comfortably.

Another is to break the stereotype that financial/retirement planning is a laborious endeavour, by employing creative and engaging means - like gamification - to encourage more Singaporeans to embark on their financial planning journey.

Such efforts should be underpinned by education. This can be done through partnerships with like-minded organisations in Singapore.

In DBS' case, the bank recently partnered Singapore University of Social Sciences' Centre for Continuing Professional Education to jointly educate the public on the importance of financial planning, especially at different stages of their personal and professional lives.

The bank has also been working with the People's Association since April to offer monthly financial literacy talks to PMETs (professional, managers, executives and technicians).

These efforts build on our online depository of free how-to guides, financial wellness articles and the wide range of financial literacy webinars that we run. We are committed to help one million customers, across all age groups, to get insured and invested by 2023.

It is certainly encouraging to see more Singaporeans taking proactive steps towards holistic financial planning. Their efforts will be bolstered as economic conditions improve, and more find themselves in better financial situations.

• The writer is head of financial planning and personal investing, DBS Bank

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