This year, persistent anxiety around inflation is driving investors of all ages to make decisions driven by emotion, especially against a backdrop of market uncertainty fuelled by the fallout of Silicon Valley Bank and Credit Suisse, according to a recent report.

Inflation and the increase in the cost of goods and services (86%) remain the biggest financial concern in 2023 across all ages for Singapore respondents surveyed and analyzed in the 2023 Wealth Insights Report commissioned by digital wealth management investment platform Endowus. The report studied investor sentiments on the economy, personal financial health and investment habits of those residing in Singapore and Hong Kong between March and April 2023.

As well, three in five Singapore respondents, the report finds, are ‘not at all confident’ that the economy will recover, and less than half (47%) are confident that they have sufficient funds for retirement.

Adjusting financial strategies

Rising inflation and economic uncertainty are prompting Singaporeans to relook their investing goals. One in three are looking to invest more this year, stating they want to do so to build a retirement nest egg. A majority (62%) cite the eroding effects of high inflation on their cash savings as a reason for investing more.

This has had a positive effect, prompting Singaporeans to be more proactive with financial planning. In the last quarter of 2022, a record S$2.7 billion (US$2.04 billion) was withdrawn from Singapore’s Central Provident Fund (CPF) members’ ordinary accounts for investment, more than any quarter since 2018. In 2022, CPF investments in Endowus’ CPF Flagship Portfolios have increased by more than 30% despite market volatilities.

Singaporeans are also turning to other methods to cope with inflation and the rising costs of living. Close to 70% of respondents say that their goal is to save more money this year, followed by exploring new passive income opportunities (56%).

Singapore millennials, in particular, are concerned that their salaries will not keep up with rising expenses (68% versus 59% for Gen Zs). They also belong to the group, commonly termed as the “sandwiched generation”, that is most likely to explore passive income opportunities in 2023 through multiple avenues, such as securing side employment opportunities, collecting rental income and investing in passive income products (61% versus 48% for Gen Zs).

Singapore less confident than Hong Kong

Singapore respondents are significantly less confident of economic recovery compared with Hong Kong respondents (60% versus 43%), spurred by concerns over rising inflation and interest rates, as well as the volatile stock market.

Conversely, Covid-19 recovery and the reopening of China’s economy have given a positive boost to respondents in Hong Kong, fuelling economic confidence. Hong Kong respondents have higher expectations for “people to spend more money” (44% versus 28% for respondents in Singapore).

As a result, two in five (43%) of Singaporeans are pessimistic about their personal financial health, while only 30% of Hong Kong respondents feel the same. This has led to a sense of caution among Singaporeans when it comes to investing their money. When asked about their investment risk appetites, less than half (41%) of Singaporeans note that they are willing to grow capital by taking some risks, as compared with 54% of Hong Kong respondents.

Emotion-led investing

Despite the growing desire to invest, build a more robust retirement nest egg and beat inflation, the study also reveals what it calls “a worrying trend of emotion-led investing”.

Over half of Singaporeans with investing experience only invest when they feel “the time is right”, and this is especially so for new or inexperienced investors. The study notes that respondents who don’t have any investing experience are also more likely to invest when they feel the time is right (66% versus 50%).

As a result, Singaporeans may be setting themselves up to be exposed to greater risk and volatility by timing the market. “Passive, evidence-based investing,” the report notes “has been proven to help investors get a return that compensates them for the risk that they take. [more so] than active trading.”

More financial education needed

More than a third of Singaporeans go to friends and family for financial and investment advice, as compared with other sources like financial editorials, as well as news and media publications. Breaking this down further, those without investing experience (55%) are more likely to consult their friends and family, as compared with 38% of respondents who have investing experience. Most concerning are the 10% of Singaporeans who do not seek financial advice from any sources.

Those who have investing experience are likely to turn to online investment platforms for investment and financial advice (43% versus 27% without investing experience). Across generations, millennials (42%) are more likely to take recommendations and advice from financial blogs than Gen Xers (26%).

“While it is good to see that a majority of Singaporeans have investing experience and are taking the steps to seek out investment knowledge, there is a lot of work to do in providing individuals with the knowledge and advice to invest well towards wealth goals, and differentiate investing and managing wealth from speculating and trading,” says Gregory Van, Endowus’ CEO. “In this volatile climate, it is ever more important for investors to keep to heart the core pillars of investing well – creating well-diversified portfolios towards specific goals, automated and maintained at suitable risk levels, implemented with best-in-class solutions at a low fair cost.”