Civil service bonus
Against the backdrop of improving economic performance, Singapore government announced civil service bonus of 2 months, consisting of Annual Variable Component (AVC) of 1 month and Non-Pensionable Annual Allowance (NPAA) of 1 month. Lower-wage civil servants will get a minimum year-end AVC of $1,800.
Together with the mid-year Annual Variable Component (AVC) of 0.5 month, the total civil service bonus that will be paid to civil servants in 2017 is 2.5 months. This is excluding individual performance bonuses and other additional bonuses.
The civil service bonus was announced at a time when Singapore economy is undergoing a period of restructuring. Even though the economy expanded at a better than expected 3.5% for the first three quarters of 2017, labour demand remained uneven across sectors in 2017. The number of retrenchment for 2017 is expected to be much lower as compared to 2016, which hit a peak of 19,170, the highest since Great Financial Crisis.
The civil service bonus is widely used by the private sector as benchmark for staff bonuses. Usually, private companies tend to peg staff bonuses to civil service bonuses and reward staff who had performed well. Nonetheless, the private sector bonus also depends on how well the sector is doing. For those working in the embattled oil and gas industry, they should be thankful that they are still gainfully employed. While those working in the banking and financial sector should look forward to receiving good bonuses.
Many of you have slogged hard for the whole year. With the coming festive season, rejoice and think about what you should do with the extra monies on hand.
Money framework
For those who received good civil service bonus, this is the time to consider the best approach to manage the monies. In view of the cautious market outlook, it is prudent for wealth builders to be careful with spending. But should you really go all out to save everything for a rainy day and track daily expenses religiously? After all, with so much uncertainty in the market and the possibility of losing your job, setting aside more cash seems to be the most logical step for many people.
Readers of this blog should know my money philosophy which consists of a framework of building an Emergency Fund and having available cash to spend and invest. I don’t believe in hoarding cash nor do I advocate spending every penny in the wallet. In life, we should strike a balance and manage our monies wisely. We only live once, so we should pamper ourselves every now and then. But at the same time, we should always maintain the discipline to invest for a sustainable wealth.
Civil service bonus is a great tool to save and invest your wealth. After setting aside six months of living expenses, you should consider ways to grow your wealth. Precious metals, such as gold and silver, could be possible means to increase your wealth. Since December 2016, gold price has surged from USD1133 per ounce to USD 1293 per ounce as of 28 November 2017. This represented an increase of 14%.
The case for gold
The key reason for the bull run in gold price was due to geopolitical tensions in the Korean peninsula. In 2017, North Korea had launched a series of missile tests. Due to the uncertainties and fear of potential nuclear war between North Korean and United States, investors fled for safety and bought into gold, which is traditionally a safe haven.
Nobody can predict the future but you can certainly take actions to mitigate the risks of stock market crashes and wars. As wealth builder, it is important to diversify your investment portfolio and allocate assets in different classes. Gold had a fine run in both 2016 and 2017 due to the uncertainties from Brexit, United States Presidential Election and the recent geopolitical tension in Korea. It remains to be seen whether gold price would sustain such bullish momentum in 2018. Nevertheless, investors should consider hedging against market upheavals.
If you have not bought gold, the year-end bonus could be useful in expanding your portfolio to include this precious metal. In Singapore, there are two major players selling gold bars – BullionStar and UOB. Since Singapore government exempted GST for investment grade precious metals in 2012, many boutique shops have set up shop to sell gold and silver bullion. However, BullionStar revealed in its Financial Results for FY2016 that it had a market share of 42% total Singapore bullion sold in Q1 2016.
Buying gold in Singapore
When buying gold in Singapore, there is a need to be discerning. Due to the competitive market, the profit margin for bullion traders is very low. Thus, if the financial position of the bullion trader is not strong, the risk of folding is high. Take for example, Degussa Singapore have closed its Orchard shop on 30 November 2017. Within two years of opening its first Singapore branch, the Europe gold retailer is calling it a day for its Singapore operations. Part of the reason is because Singapore market is very small and with so many retailers, it is difficult for new players to survive unless they gained traction in market share.
BullionStar stood out among its peers for its impressive product range which included over 500 different bullion, numismatics and coin supply products across 10 different product categories. Personally, I do not know any other bullion shops that carry so many variety of bullion products. Another competitive edge of BullionStar is its strong online system which features the Bullion Savings Program, enabling customers to convert their BSP Grams to physical bullion at any time without any charge.
BullionStar’s sales revenue for FY 2016 was SGD 134.2m, up from 63.4m in FY 2015. Gold consisted of 66.30% of total sales for FY 2015 whereas it increased to 72.57% of total sales for FY 2016. The increase in popularity for 100 gram gold bars and 1 kg silver bars are attributable to the high demand for the BullionStar 100 gram gold bar and the BullionStar 1 kg silver bar.
The problem of investing in physical gold bars in Singapore is the liquidity. Most retailers only buy back the bullion products sold by their stores. For example, according to its website, “UOB accepts gold coin or gold bars originally bought from UOB Singapore or OUB Singapore. Customers are required to produce invoices of purchase satisfactory to UOB. The gold coins or bars must be in good condition (to be solely determined by UOB which decision shall be final). For the gold kilobar, the seal must be intact”. BullionStar is one of the rare retailers that buys back bullion that are not sold by them.
What about the stock market?
Another popular approach of investing is buying stocks for dividends. But wealth builders should note that USA stock market is now at all-time high and many stocks could be trading at inflated prices. At this point of writing, the Dow Jones is at 23,860 points. A stock market bubble might be forming, so investors must think twice about using year-end bonus to invest in stock. Always remember that the return of your capital is always more important than the return on your capital. You don’t want to be caught with your pants down during sudden market crash.
Buying a stock is very different from buying bullion. The former requires you to actively perform research, analysis the company’s performance and set strategy on the entry and exit price. It is surely not as easy as what many investors perceived. The general thinking is that owning a company stock means that you own a piece of the company and so you can just sit back and let the money roll in. Although this may be true, business climate changes all the time. Thus, the likelihood of sustaining paper losses is very high if you don’t exit your investments in time. Some companies even got wind up (e.g. Swiber Holding), causing investors to get back nothing at all.
Conclusion
Managing money is part and parcel of life. Civil service bonus is an opportunity for civil servants to gain experience on money management. There is no right or wrong way. The only thing that matters is whether you grow or lose wealth at the end of the today. Even if you lose money from investments, it is important to assess where you go wrong and learn from mistakes. Start growing by subscribing to this blog.
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