How to spend your year-end bonus

Vasu Menon
Senior Investment Strategist, Wealth Management Singapore
Member of OCBC Wealth Panel

Bonuses tend to be viewed as rewards by employees, and, not surprisingly, the first instinct of many would be to try to find means of spending this “unexpected” windfall.

Savings and Investments

Before you succumb to temptation and spend your entire bonus, remember that the year ahead is filled with unprecedented economic and political uncertainties. The Singapore economy could face significant headwinds and job security cannot be taken for granted. We are about to enter unchartered waters, and in such a scenario, it’s best to be conservative and save a significant chunk of your bonus for potential thunderstorms ahead by placing it into a fixed deposit. You can then fall back on the funds if something unexpected happens on the job front to tide you over till you find another job. The peace of mind that comes with knowing you have sufficient funds to tide you over should you lose your job is priceless.

Linked to this is the consideration of how prepared you are for rainy days ahead. In other words, if you’ve not set aside an emergency fund that will be able to cover at least six months of your monthly expenses, then use your bonus to start one. Aside from the risk of job loss, the fund can also help you to cover other unforeseen events like unexpected medical expenses due to an illness or temporary disability due to an accident.

Alternatively, invest some of the savings in markets. This is not suitable for everyone and only relevant to those with a strong risk appetite and who have already set aside sufficient emergency funds. For those with a lower risk appetite, selected single premium endowment products can be considered, some of which offer guaranteed returns such as OCBC Bank’s Single Premium Special 1.88% 5-year endowment plan.

Debts and Retirement

Another factor that should come into play is what life stage a person is in. Naturally, a person who is planning to get married or a middle-aged couple with children will look at their bonuses differently from someone who is nearing retirement.

The middle-aged couple may have a longer term plan in mind, and may keep the money aside for their children’s tertiary education. Some may even use the money to settle debts like mortgage if they are working towards being debt-free as soon as possible.

Those nearing retirement, on the other hand, may treat themselves to a holiday abroad, provided they have been diligent in building their retirement nest egg. If they are still planning for their retirement, then they would probably use their bonus to meet this objective, like contributing to their Supplementary Retirement Scheme (SRS) account which can yield attractive income tax benefits, or investing their bonus into a less risky product that can yield decent returns.

Live a Little

For those who have adequately addressed the above factors, go ahead and treat yourself a little. After all, your bonus is something that you have worked hard for and you deserve to enjoy some of the fruits of your labour.

In a nutshell

  • Singapore has outperformed the region
  • REITs were the star performers
  • Valuations are undemanding
  • Privatisation theme is gathering momentum
  • Oil has recovered from the lows
  • LionGlobal Singapore Dividend Equity Fund is a good proxy to holding a diversified Singapore portfolio