During a Christmas gathering with friends, someone asked me for a question: What is the best risk-free instrument in Singapore? It was an easy question. My answer to that was: There is no risk-free instrument in Singapore. Traditional risk-free instrument is associated either with a bank deposit (preferably linked wiith the Singapore goverment) or the Singapore Government Securities (SGS). But we know that bank deposits and 10-year SGS is below the inflation rate. It is forecast that inflation for 2008 will be 4-5% per annum. Thus those who thinks that their money in bank or SGS is very safe is mistaken because net of inflation, their return is GUARANTEED negative. An instrument cannot be risk-free if the return after inflation is negative. Hence, there is no risk-free instrument in Singapore. Perhaps the exception is CPF-SA and Medisave which its interest rates is highly attractive. Other then CPF-SA and Medisave, the only way to gain potentially higher return is to take risk. There do not seem to be a choice for Singapore residents.
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