As weird as the title sounds, this concern is real to a certain group of people living in Singapore. This is prevalent in 2 groups of individuals. The super low risk and those entering their 50s.
For the first group, it's frankly just emotional. Being super low risk usually means worrying about the 'What ifs' in almost everything in life and fearing the worse. Hence, most of the time, this group take minimal action with their money.
I don't know why they rarely worry 'what if inflation erode most of my spending power...'
As for the second group, the concern in my opinion is legitimate. High achievers at this age group working in the corporate sector are susceptible to retrenchment risk. Above all, at this age group and pay grade, it isn't that easy to replace the income.
However, despite the job insecurity fears, doing nothing with our funds is the surest way to lose money. Inflation is real.
In this article, I discuss how I would deal with this issue if I am in this situation. I'm also trying to keep my articles shorter so that it'll be easier to digest.
You need a plan
Having an awareness that inflation is an issue is the first step. The more dangerous group is the group who is oblivious to their situation and just earn and spend money as though they will be working perpetually.
After acknowledging the issue of inflation, the next step is naturally to do something about it. Most solutions to build wealth and fight retirement are long term in nature hence if one is worried about future job instability, it might deter you from doing anything. Once you know why you are behaving like this, you need to acknowledge the fear and find a solution around the problem.
Usually such concerns have 2 considerations.
What if I can't keep up with my investing or savings commitment in the future? I better not start anything.
What if I need the money in future and I can't withdraw it. I better hold cash.
Let's look at these 2 concerns.
For the first concern about keeping up with regular commitment, there are 2 suggestions. Take up contribution periods that are within a time frame you see yourself working. Alternatively, do one time contributions each time but do it regularly.
Be practical
Let's face it, if you are in your 20s or 30s and you have this fear that you lose your job and cannot find an equivalent job, my answer to you is to go upgrade and make yourself more valuable.
Most people know for a fact even if they lose their jobs in these age groups, they can't stop working and will get back into the workforce as soon as possible. Even if they can't, most sensible adults know they will teach tuition, deliver Grabfood or take up all sorts of gig economy tasks to earn enough to pay their bills and have savings.
So if one worries they can't invest for 15 years or 20 years then perhaps you might want to do something for 5 to 10 years.
If commitment is really such an issue, then using lump sums to fund these investment endeavours might be the next best thing. Once you invest this money, there's no further commitment and future retrenchment won't be an issue.
What if I lack the lump sum?
The common issue here for those who are younger is they might lack the lump sum. You have to create it. Basically, my suggestion is to create a proxy regular savings plan for yourself that is done by saving your money up manually using a spare bank account. You do this on a monthly basis and at the end of the year, strive to invest your money somewhere.
If certain lump sum investments need a bigger contribution, you either build through smaller investments or saving a bigger monthly portion manually. Again, face it, you can't have absolute comfort and build wealth as much as everyone else. If it is too good to be true, it probably is.
What if I need money in the future and I can't withdraw it?
To begin, I'll suggest making sure you have at least 6 months of your salary set aside as your emergency funds.
Secondly, read the heading under Be Practical again. Anything that appreciates in value needs time to grow. It's not lottery or a casino. On top of which, there are instruments that have withdrawal flexibility and those without. It's basically a balance between risk and reward.
If you want low risk, higher return, you basically need to exchange risk with time. So for that portion of your portfolio, just be prepared to lock it up. You need it for retirement anyway. If you are willing to take more risk, get a higher return then you can exchange less time for it. Often it comes with greater flexibility.
Doing nothing or minimal things is not a solution
Here's my point, investing a small fraction of your funds and keeping the rest of your funds in the bank is unwise. Imagine a person has $100,000 saved up. The person is willing to set aside $20,000 for investing. Let's assume he/she made 5% return. That would be a $1000 profit. However, $80,000 is left idling in the bank and inflation is about 2.5%. That means that $2000 of the $80,000 purchasing power is lost. Which means this person actually lost $1000 from $100,000. Can you imagine if this is compounded for 20 years?
Summary
To keep this article short, having a fear of future loss of job shouldn't deter you from investing your money. What you should do is work around the perimeters to create an arrangement that is palatable for yourself.
A good way to go about this is to take on shorter contribution commitments but do it more regularly or contribute lump sums yearly. As long as one is making their money work harder instruments that beat or meet inflation, generally one shouldn't be too worse of. However, if one is leaving their funds in the bank and losing its purchasing power to inflation, that is a sure lose situation. In my opinion, this should give you a bigger loss aversion fear that potentially losing your job.
After reading this article, you may have some questions or may want to find out more about how to structure solutions to beat inflation within your own risk capacity. You can reach me by dropping me a message.
Be sure to share the article if you feel this information is helpful. You will enable a lot more people to learn about growing their wealth.
About Janice
I specialize in portfolio optimization (ensuring you get maximum value for every dollar you put in) and retirement planning.
Clients look for me primarily to outsource their retirement planning needs so that they can focus on other aspects of life that interests them. Many of whom are very good in earning their incomes in their respective professions and wish to ensure their monies continue to work harder while they focus on what they are good at. Refer to client testimonials here.
I've helped many clients who are referred to me reduce the costs they are paying for their insurance or help provide solutions when they deem they are stuck with huge commitments bought when they were younger but unsuitable for their present life stages. You can reach me at 94313076 or my social media accounts on Facebook and Instagram.
Disclaimer: The content created are based on my personal opinions and may not be representative to everyone or any organisation. If you have any doubts or queries pertaining to insurance or investment, please seek professional advice from a trusted adviser in an official setting. You may also reach out to me if you do not have a present adviser using the message box under 'Let's Talk'.
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