Diversifying your portfolio: Alternative investments in Singapore to consider in a low-interest rate environment

By Jin Lee

In today's uncertain financial landscape, investors need to diversify their portfolios to manage risk and maximise returns. With the current low-interest rate environment in Singapore, traditional investment options such as savings accounts and fixed deposits may not offer attractive returns. This is where alternative investments in Singapore can provide a fresh perspective and diversify your portfolio.

In recent years, Singapore's central bank, the Monetary Authority of Singapore (MAS), implemented measures to maintain low-interest rates to support the economy. This has resulted in lower returns for investors in traditional investment options.

In Singapore, with the current low-interest rate environment, many investors are seeking alternative investment options to diversify their portfolios and maximise returns. According to the Monetary Authority of Singapore (MAS), the average interest rate for savings accounts in Singapore was 0.08% in 2021, while the average interest rate for 12-month fixed deposits was 0.24%. These low returns have prompted investors to consider alternative investments such as real estate investment trusts (REITs), private equity, art, cryptocurrencies, and commodities.

REITs, for example, have been a popular alternative investment in Singapore, offering a relatively stable and attractive return compared to traditional investment options. In 2020, the average return for REITs in Singapore was 8.2%, according to the SGX REIT Index. Private equity investments in Southeast Asian companies also provide the potential for high returns, with an average return of 20.3% in 2020, according to Preqin. REITs are also an attractive option for investors in Singapore who may not be willing to take on the risk of a mortgage but would like to be a part of Singapore’s growing economy and property market. Singapore’s property market has been growing quickly in the last three years and with businesses moving from Hong Kong to Singapore, the demand for property could increase further in the next few years as well.

Investing in art in Singapore can also provide long-term capital appreciation and diversification benefits. The art market in Singapore has been growing, with the total value of art transactions increasing by 23.9% in 2020, according to Artprice. Cryptocurrencies such as Bitcoin also offer the potential for high returns, although they come with higher risks, including market volatility and regulatory uncertainty. In 2020, Bitcoin saw a return of 314.6%, according to Coinmarketcap.

Investing in commodities such as precious metals, energy products, and agricultural products can also provide diversification and inflation hedge benefits. In 2020, the average return for gold was 24.1%, while the average return for crude oil was negative 44.2%, according to World Bank. There is also the benefit of investing in commodities like gold, which provide you with protection against inflation. In addition, gold is an alternative asset to cash and is a strong store of value against government monetary policies that may impact the value of the US Dollar or the Singapore Dollar.

Diversifying your portfolio in Singapore with alternative investments can provide higher returns and reduce overall portfolio risk. However, it is important to understand the risks and return expectations associated with each alternative investment before making a decision. Consulting with a financial advisor can help you make informed decisions and ensure that your portfolio is well-diversified to manage risk and maximise returns in the current low-interest rate environment.

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