A Personal Finance and Investment Arm of The Business Times


Borrow to invest at no risk?

Borrow against your assets to invest?

What if someone suggest to you that you can borrow against the equity of your residential property(ies), shares, investment funds, bank deposits and other assets, at an interest rate of about  one  per cent?

Normally, the maximum loan tenure is until age 75 and subject to the 60 per cent Total Debt Servicing Ratio (TDSR). However, up to 30 per cent of certain approved assets (divided by 48 months to add to one's earned income) may be applied to increase one's income. 

And then ask you to invest the loan that you have taken … ?

Focus on risk?

What are the things that you should consider?

Well, in my opinion – your primary consideration should be “what are the risks?”

Interest rate risk?

Can you repay the loan if the loan interest rate rise to such a level that the probability of the investment returns may likely be below the loan interest?

Are there any penalties for early redemption of your loan?

Currency risk?

To avoid currency risk – should your investments ideally be in S$ assets? Please note that just because an investment fund is denominated is S$ in Singapore does not necessarily mean that there is no currency risk. Are the underlying assets subject to currency risk?

Default risk?

If you invest in a bond, the issuer can always default. So, the least risky bonds, are Singapore Government bonds (also no currency risk). In fact, the yield on the long-term government bond is defines as the risk-free rate, and is the benchmark for measuring the risk premium against all investments.

Risk Premium?

The “Risk Premium” is the return in excess of the risk-free rate of return that an investment is expected to yield. An asset’s risk premium is a form of compensation for investors who tolerate the extra risk – compared to that of a risk-free asset – in a given investment.” (source: Investopedia)

Market risk?

The entire global or local stock market may crash. A listed company may go bust. Even government bonds are subject to market risk, such as when interest rates rise a lot very quickly. However, looking at the history of interest rates, inflation policy, government securities’ price history, etc – in my view, this risk is relatively low in Singapore, compared to government securities in other countries.

“Sure make money” investment?

So, if you borrow at say 1.5 per cent, and invest in long-term Singapore government bonds (the yield on the 30-year Singapore government bond, 20, 15 and 10-year Singapore government bond was 3.04, 2.92, 2.85 and 2.27, respectively) – there is almost no risk?

Uniquely Singapore right?

Robin Han
Leong Sze Hian

Dr Leong Sze Hian is the Past President of the Society of Financial Service Professionals, an alumnus of Harvard University, has authored 4 books, quoted over 1500 times in the media , has been host of a money radio show, a daily newspaper column, Wharton Fellow, SEACeM Fellow, acting managing editor and columnist for theonlinecitizen, columnist for Malaysiakini, a Member on the CIFA International Advisory Board, executive  producer of the movie Ilo Ilo (8 international awards), treasurer of Maruah, and invited to speak more than 100 times in more than 25 countries on 5 continents. He has served as Honorary Consul of Jamaica and founding advisor to the Financial Planning Associations of Brunei and Indonesia. He has 3 Masters, 2 Bachelors degrees and 13 professional  qualifications.