Due to COVID 19, industries like Travel, Tourism, Retail, F&B, etc are badly impacted. To stimulate the economy, many central banks have reduced rates or increased money supply.
This has resulted in a low interest rate environment, which makes it difficult to generate a steady income from bank deposits. For instance, the twelve month fixed deposit rate in Singapore is less than 0.5%. If you put $100,000 into a 1 year fixed deposit, you will only receive less than $500 at the end of that period. This will not help you accumulate wealth because inflation in Singapore is around 1-2% (according statistics provided by statista.com).
To accumulate wealth, one should not rely solely on one source of income (usually salary or business). Investments can also become a source of recurring income. These may include interest, dividends, coupons from from equity, bonds, and even funds.
One reason why many people don’t start investing, is because they don’t have time to actively manage their portfolio. However, this doesn’t need to be the case, as you can choose to invest for the longer term of 10 to 20 years or more. While in the short term the market may be volatile, in the long-term good investments usually appreciate in value.
A benefit of investing into an income paying fund, is that they can provide buffer when there is short term volatility. During bear markets, funds can experience some losses. However, these losses can be cushioned by the income payouts that investors will receive. Every time you receive a notification about dividend payouts, you should decide whether to spend the dividends or reinvest it for a greater potential return.
If you want to find out more about income paying funds, book an appointment with our Financial Planners from FLA Organization for more information today.
