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At the start of the year, many of us may still be hoarding bonuses from 2023 year-end or Chinese New Year. Since bonuses are usually not guaranteed, it’s wise that we do not budget for our monthly expenses with it in mind.
Having this extra cash in hand, we may be tempted to treat ourselves to something special after working so hard to earn this reward. A shiny new gadget or booking a holiday are never far from our wishlists.
While the instant gratification from spending our bonus on what we want will definitely be worth it, it will likely be fleeting – let alone last for the long term or help us stay ahead of inflation.
Instead, here’s how we can be financially prudent with our bonus – and make it last.
#1 Pay Down Your Loans – And Relieve Stress
To ensure our bonus has a lasting impact, one of the easiest things we can do is to pay down high interest rate debt. This typically includes any loans, such as personal loans and credit card debt that charge more than the 5% interest rate.
We won’t just be reducing the stress of having to make interest payments on time each month, but also eliminating a looming threat of late charges and even more interest costs if we ever miss a payment.
Enjoying this peace of mind is also something that cannot easily be bought.
#2 Contribute To Your CPF And SRS – And Grow Retirement Adequacy
By making additional contributions to our CPF Special Account (SA) or our Supplementary Retirement Scheme (SRS), we can beef up our retirement adequacy – ensuring we have more in our golden years. As an added benefit, we can also save a tidy sum on taxes.
For example, the average employee made $5,197 from work in 2023. In most cases, such an employee may end up paying close to $1,250 in taxes. By simply contributing $10,000 across our CPF and SRS accounts, we may save about $700 in taxes.
We can also contribute a maximum of $31,300 across the CPF and SRS schemes to earn a tax benefit. This comprises $8,000 to our own CPF accounts, $8,000 to our loved ones’ CPF accounts and up to $15,300 in our SRS accounts to earn a dollar-for-dollar tax relief.
Those who fall in higher income tax brackets will stand to save even more on taxes. Obviously, having the discipline to build our retirement nest egg over many years is what will strengthen our retirement adequacy.
Money that we contribute to our Special Account will start earning a return of 4.08% p.a. This will be put into the CPF LIFE scheme, where we will receive lifelong monthly payouts in our senior years.
Funds contributed to our SRS accounts have to be invested if we want to earn further returns, beyond tax savings.
#3 Invest Your Bonus – And Combat Rising Costs
Some of us may prefer investing our bonus to earn a return in the financial markets. We can use exchange traded funds (ETFs) to ensure we achieve broad diversification across companies and asset classes, while paying competitive fund management fees.
Over the long term, broadly diversified equities have delivered 6% to 7% per annum. This will help us build up our savings that we can use for a variety of reasons, including our children’s education, annual vacations, and even retirement.
Beyond equities, we should also consider asset allocation. A report by State Street Global Advisors found that a globally diversified portfolio can achieve better returns and reduce volatility by implementing an asset allocation strategy that includes gold exposure.
By adding exposure to gold from 0% to 10%, via the SPDR Gold Shares, the portfolio’s maximum drawdown decreases while achieving higher annualised returns. You can read more about it in Case for Constructing Portfolios with SPDR® Gold Shares.
Gaining Exposure To Gold May Be A Boon For Your Portfolio In The Long-Term
Since 1971, gold prices have risen 7.52% p.a. This has kept pace with rising inflation (i.e. the US Consumer Price Index) over the past five decades – acting as a valuable investment to preserve our wealth and spending power.
Source: State Street Global Advisors (Invest in Gold: A Portfolio Diversifier With Staying Power)
(All screenshots taken from same report)
Over the past 30 years, gold has also exhibited a relatively low correlation to both major equity indices and fixed income indices. This is what helps to reduce portfolio volatility.
Especially in times of economic turmoil and geopolitical uncertainty, gold has also played a role in protecting against market downturns. For example, between 1987 to 2022, each time the US equity market crashed more than 15%, gold was able to outperform US equities every time – playing a hedging role as an effective portfolio diversifier.
Today, despite the higher interest rate environment, gold prices have remained relatively resilient. This may be attributed to gold’s characteristic as a risk management tool.
As market volatility rises, there is usually a flight to safety. Already, global central banks have continued investing in gold to diversify their reserves away from the US Dollar and other reserve currencies.
Historically, gold has had a negative average correlation of -0.37 to the US Dollar. This points to a potential boon for gold prices on the horizon. With the market pricing in rate cuts in 2024, there will be further pressure on the US Dollar, beyond the risk of US credit downgrades due to fiscal uncertainty.
Invest In Gold Through SPDR Gold Shares
Besides protecting our portfolio against short-term market volatility, adding gold exposure also benefits our portfolio in the long term. As described in the examples above, one of the most convenient ways we can invest in gold is via the SPDR Gold Shares on SGX.
This way, we do not need to worry about buying or storing physical gold coins or bars, while still enjoying high liquidity – with the SPDR Gold Shares being the largest physically backed gold ETF in the world.
This physical gold is held in an “allocated account” by HSBC Bank plc and JPMorgan Chase Bank as the custodians. This means that full ownership is retained by the fund, and the custodians cannot trade, lease or lend the physical gold.
The SPDR Gold Shares seeks to track the price of gold, minus expenses. The returns that we earn by investing in SPDR Gold Shares are also transparently presented. On spdrgoldshares.com, we can preview the price, holdings and net asset value, as well as market data for the overall gold bullion market.
Moreover, the SPDR Gold Shares also charges a competitive Total Expense Ratio of 0.40%.
For Singapore investors, we can easily gain exposure to the SPDR Gold Shares in 2 currencies, either via the USD (SGX: O87) or the SGD (SGX: GSD) share classes – both listed on SGX – depending on our preference. Additionally, we can invest in the SPDR Gold Shares via the CPF Investment Scheme (CPF-IS) and SRS account.
Important Disclosure: Sponsored by State Street Global Advisors Singapore Limited (Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore). This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. All forms of investments carry risks, including the risk of losing all of the invested amount. Such activities may not be suitable for everyone. The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell an investment. It does not take into account any investor’s particular investment objectives or investment horizon. The prospectus in respect of the Singapore offer of the SPDR® Gold Shares (the ‘Shares’) is available at The value of Shares may fall or rise. Investors should read the prospectus before deciding whether to purchase Shares. Investors have no right to request the World Gold Trust Services, LLC, State Street Global Advisors or any of their affiliates to redeem their Shares while the Shares are listed. Listing of the Shares on the SGX-ST does not guarantee a liquid market for the Shares.
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Diversification does not ensure a profit or guarantee against loss.
Past performance is not necessarily indicative of the future performance.
Assets may be considered “safe havens” based on investor perception that an asset’s value will hold steady or climb even as the value of other investments drops during times of economic stress. Perceived safe-haven assets are not guaranteed to maintain value at any time.
There are risks associated with investing in Real Assets and the Real Assets sector, including real estate, precious metals and natural resources. Investments can be significantly affected by events relating to these industries.
ETFs trade like stocks, are subject to investment risk and will fluctuate in market value. The value of the investment can go down as well as go up and the return upon the investment will therefore be variable. Changes in exchange rates may have an adverse effect on the value, price, or income of an investment. Further, there is no guarantee an ETF will achieve its investment objective.
Brokerage commissions and ETF expenses will reduce returns. Commodities and commodity-index linked securities may be affected by changes in overall market movements, changes in interest rates, and other factors such as weather, disease, embargoes, or political and regulatory developments, as well as trading activity of speculators and arbitrageurs in the underlying commodities. Currency exchange rates between the U.S. dollar and non-U.S. currencies may fluctuate significantly over short periods of time and may cause the value of investment to decline. Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs. Investing in commodities entails significant risk and is not appropriate for all investors. Commodities investing entails significant risk as commodity prices can be extremely volatile due to wide range of factors. A few such factors include overall market movements, real or perceived inflationary trends, commodity index volatility, international, economic and political changes, change in interest and currency exchange rates.
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