Growing and protecting wealth are two sides of the same coin

THE Covid-19 crisis brings home to all of us the importance of being financially secure in a time of crisis. Some individuals and families were caught off guard when the pandemic struck, resulting in an adverse and tragic impact to both life and livelihood.

As a result, people are placing greater emphasis on investing in their long-term financial and healthcare needs. This is evident in statistics from the Life Insurance Association. In the first half of 2021, the insurance industry generated S$2.68 billion in weighted new business premiums, up 61 per cent year-on-year. Retirement policies grew 34 per cent compared with the same period last year.

Despite this impressive growth, many reports and surveys indicate that Singaporeans regret that they did not plan for their retirement early enough, and many expressed dissatisfaction with the current state of their retirement savings.

It is human nature to want to pursue wealth augmentation while downplaying the risk of future financial erosion or loss. That is why securing and increasing the value of your investments must go hand-in-hand; both aspects are critical components of financial planning that complement each other as part of an integrated effort to achieve your financial goals. In other words, when it comes to managing your wealth, protection and growth should be viewed together.

Freedom to think differently

Beyond these purely financial considerations, however, protecting your wealth also gives you the freedom to think differently about your future, or to try something new that you might not have attempted if your financial future was not secure. It is sometimes easier to follow a different path when you know that your mortgage or medical expenses will be taken care of.

So, protection is not just about shielding yourself against death or illness, but also about giving you the breathing room to choose alternate life journeys. In a recent AIA Singapore retirement survey, about 10 per cent of respondents indicated that to retire meant a chance to switch to a totally new career that they have always yearned for.

A sound financial plan considers not just growing wealth but also the ways and means to protect it. For instance, a 40-year old who seeks to accumulate a substantial retirement nest-egg by the time he or she retires at 65 must not only have a good financial plan to achieve this goal, but also the adequate safeguards to ensure its success in the event of a debilitating illness or job loss prior to retiring.

We often focus only on investments when the big picture should include things like home planning, insurance and retirement. For example, death and critical illness policies, or even mortgage insurance products that cover housing loans when one is no longer able to service the minimum monthly payment, should be critical pieces of a holistic plan.

Digital wealth adviser tools

Financial planning need not be a laborious and complicated process, contrary to what many believe. For instance, there are digital wealth adviser tools which investors can use in tandem with their relationship manager or financial advisor to help plan their investments, monitor and track growth, and modify or manage their portfolios.

Additionally, having a well-diversified portfolio can help navigate market volatility over time. There are diversification tools to help investors to map investment goals, and spread their risk across various products, as opposed to holding a single investment product over a significant period of time.

It is also important that wealth planners craft customised solutions to meet their client's unique needs at any life stage - for themselves and their loved ones. Their clients have unlimited aspirations but limited resources.

Start the conversation early and diversify.

There will likely be further shocks in the future - another pandemic perhaps, a sudden recession, or something far more personal, which may prove financially demanding. Prudent financial planning suggests these conversations should happen sooner rather than later. Clients can identify long-term goals like retirement while working towards short-term goals such as housing or funding their children's education.

The conversation around investment and protection should be an ongoing engagement. As one's circumstances change, so too does one's financial requirements.

In today's low-interest-rate environment, for instance, we see portfolios that clients continue to hold onto despite minimal returns. This apparent low-risk approach is illusory. With inflation, these portfolios end up losing money as the savings are unable to keep up with the loss of purchasing power. Financial plans, therefore, need to be reviewed and adjusted to remain relevant.

In the end, just as we moderate our life choices over the years, we also need to re-balance our investment portfolio according to our changing circumstances. There are things that we simply cannot afford to leave to chance.

• The writer is head of retail banking at Citibank Singapore