StashAway’s Intro to Cash Management
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It’s often said that money doesn’t grow on trees. While that much is true, you may be surprised with what you can accomplish through effective cash management. And the power of good cash management becomes clearer in a high interest rate environment, where returns on your cash can be substantial.
But regardless of how the markets are, or where you are in life, cash management remains the core of any personal finance journey. And there’s much more to it than just fixed deposits and savings accounts. Cash management is both knowing that your money is working for you, and that it’s ready when life throws you a curveball – or when you want to throw one back at life!
Key takeaways
- Knowing how much cash to hold at any time is a key part of cash management. Think of your financial goals and the time horizons needed to achieve them. On top of that, it’s always good to have a safety net built up for those rainy days.
- Cash management balances returns, risk, and liquidity. To focus on one is to trade off another. Optimal cash management plays to the strengths of all available options.
- Our Simple suite is designed to manage your cash effectively. Simple, Simple Plus and Simple Guaranteed are each optimised for either liquidity, potentially higher returns, or lower risk.
- The returns for our Simple suite are updated on a monthly basis below. There you’ll also find our quarterly performance commentary, along with a look ahead.
Finding the right place for your cash
You probably know that you shouldn’t keep your money under the mattress. The risk of inflation eating away at the value of your cash over time is always present. It’s important to understand exactly how much cash you should have and where you should keep it.
Before we get into the details, try out our easy-to-use tool – it crunches the numbers for you, giving you an idea of how much cash to hold. In short, there are four things to keep in mind:
- For expenses, consider having 1 to 2 months’ expenses in your current account. Any more than that, and your money may no longer beat inflation.
- For your safety net, 6 months’ worth of expenses is a good rule of thumb. It’s a fund that you can access quickly for rainy days. But because you don’t have to access it often, you can put it in a higher interest earning account. Either our Simple and Simple Plus portfolios, or even a combination of the two, fit well here.
Now that you’ve set aside your cash, you can put the rest of your money to work, leveraging on the power of long-term growth. Goal-based investing comes into play here: once you’re familiar with your goals, you’re able to balance your risk while keeping time horizons in mind.
- With short-term goals, your cash has a little more time to give higher returns – any of our Simple suite of cash management portfolios work well here.
- For long-term goals, consider staying invested in the markets. Our diversified General Investing portfolios lets you tap into powerful long-term returns.
Balancing risk, returns, and liquidity
The best cash management strategy involves knowing the strengths and weaknesses of your options – it’s about ensuring you have the right amount of liquid cash on hand, while maximising your returns. All without getting into too much risk.
For example, you could invest in a short-term bond fund offering higher returns. But there’s a risk of the fund losing some value in the short term. Not ideal if you’re going on holiday soon. Alternatively, you may keep your money ultra-safe, and know upfront your returns in a fixed deposit, but here you give up on liquidity.
The point is: there’s no silver bullet here. It’s better to consider your needs first, and use a mix of options, rather than relying on only one.
And to make the best financial decisions for yourself, you need to know what’s available to you. Here’s a visualisation of volatility and hence risk for different investments over time, starting from least volatile:
StashAway’s Simple suite
There’s a plethora of cash management products out there, from savings accounts to money market funds, it can get confusing. That’s why we’ve decided to keep things Simple. With Simple, Simple Plus, and Simple Guaranteed, we offer three different portfolios to help you make the most out of your cash. And keep in mind, all three might fit within your strategy.
| StashAway Simple | StashAway Simple Plus | StashAway Simple Guaranteed | |
|---|---|---|---|
| Rate | 3.40% (projected) | 3.8% (yield-to-maturity) | 3% (guaranteed) |
| Management fee (already included in rate) | 0.15% | 0.2% | None, the rate you see is the rate you get |
| Risk | Ultra-low | Slightly higher than Simple, find out more here | Principal and interest amounts are guaranteed subject to underlying bank risk |
| Underlying funds | 30% LionGlobal SGD Money Market Fund, 70% LionGlobal SGD Enhanced Liquidity Fund | 20% LionGlobal SGD Enhanced Liquidity Fund, 20% Nikko AM Shenton Short Term Bond Fund, 60% LionGlobal Short Duration Bond Fund | Fixed deposit at Citibank |
| Lock-in period | None | None | 6 months |
| Currency denomination | SGD | SGD | SGD |
Accurate as of 11 October 2024.
With our Simple suite, you’ll notice three different terms for returns:
- Simple provides a projected rate; an estimate of expected actual returns. As the underlying funds are not marked-to-market, they have almost no volatility.
- Simple Plus provides the current yield-to-maturity (YTM), which is only one component of actual returns. Actual returns are a combination of YTM and mark-to-market price changes. So, there may be periods when returns come in below projected YTM, and others when they go above. We explain further in our returns section below.
- Simple Guaranteed’s rate is the most straightforward – it’s guaranteed.
When comparing our portfolios, it also helps to know about drawdown rates. These measure how much a portfolio’s value has dropped on average, in any given month. Imagine you’re climbing a hill; you may slip once in a while, but you’re always aiming to go up. How far you have slipped on average is your drawdown rate.
As of 30 June 2023, Simple has a drawdown rate of 0% – it hasn’t lost value, on average. Simple Plus, meanwhile, has a drawdown rate of 0.14%. And because Simple Guaranteed has guaranteed returns, drawdowns don’t apply. The chart below helps to visualise this:
Net returns after fees updated to 30 June 2023, in SGD. Past performance is not indicative of future returns. Performance figures assume that dividends or any payouts were reinvested.
And if you’re wondering about the possible returns on other cash management options:
Accurate as of 31 August 2023; Notes: Savings accounts: With DBS, assuming S$30,000 deposited, crediting your salary, and using their credit card, otherwise it’s 0.05%; T-bills: Cut-off yield at last auction on 31 August 2023; SGS bonds: Cut-off yield at last auction on 29 August 2023; Singapore Savings Bonds: Based on latest issuance, limited at S$200,000, S$2 transaction fees; Fixed deposits: May include other conditions, such as a minimum or maximum, only for fresh funds, or the need to visit a physical branch.
While you may be tempted to go with the highest rate, remember: Optimal cash management accounts for trade-offs between liquidity, risk and returns. Try answering these questions to see which portfolio fits you best:
Whichever Simple suite portfolio you decide, we’ve made it easy to expand your investing strategy from there. For example, you can set up a recurring transfer from a Simple or Simple Plus portfolio to any of our General Investing portfolios – an effective way of getting into the markets via dollar-cost averaging.
Managing your cash is always important, but when it comes to the long term, staying invested in the markets is one of the most powerful methods of reaching your financial goals.
StashAway’s Simple Returns H2
Latest returns for Simple (updated to 15 January 2024)
| Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | Current projected rate | |
|---|---|---|---|---|---|---|---|---|---|
| Average projected annualised rate | 1.00% | 1.09% | 1.7% | 2.36% | 3.05% | 3.40% | 3.55% | 3.62% | 3.40% |
| Actual net annualised return | 1.12% | 1.41% | 1.85% | 2.03% | 1.68% | 3.28% | 3.47% | 3.47% |
Net returns after fees updated to 15 January 2024, in SGD. Past performance is not indicative of future returns. Performance figures assume that dividends or any payouts were reinvested.
Since early 2022, Simple’s actual rates have tended to outperform the projected rates slightly with a notable exception in Q1 2023. This was driven by the fund manager rotating underlying assets in the fund into higher yielding ones, with the increase of interest rates, which will benefit the fund in the coming year.
Latest returns for Simple Plus (updated to 15 January 2024)
| Q4 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | Current projected yield-to-maturity * | |
|---|---|---|---|---|---|---|
| Average projected annualised yield-to-maturity | 3.93 to 4.40% | 4.60 to 5.00% | 4.60 to 5.00% | 4.60 to 5.00% | 4.60% | 3.8% |
| Actual net annualised return | 3.83% | 4.81% | 3.18% | 2.31% | 6.36% |
Net returns after fees updated to 15 January 2024, in SGD. Past performance is not indicative of future returns. Performance figures assume that dividends or any payouts were reinvested, starting from the first full quarter since inception.
* Calculated as a weighted average of projected YTM (the indicative rate changed from 3.6-4.1% to 4.6-5.0% on 1 December 2022).
Simple Plus can experience short-term volatility, including periods of negative returns. But ultimately, the underlying bonds deliver annualised income equating to YTM when they come due. The average bond duration for our Simple Plus portfolio is 18 months.
In Q2 2023, returns were impacted by rapid US interest rate hikes as marked-to-market prices of bonds are negatively correlated with interest rates. This was captured in the price of the bond funds rather than the YTM projection.
Latest guaranteed rates for Simple Guaranteed vs alternatives
Overview of the rates for a 1 month tenor
| Interest rate (p.a.) | Condition 1 | Condition 2 | |
|---|---|---|---|
| DBS | 0.3% | Min $1000, Max $19,999 | Any amount above $20,000 receives 0.5% interest |
| OCBC | 0.05% | Min $5000 | Any tenor below 12 months or other amount receives 0.5% or less |
| UOB | 0.05% | Min $5000 | Any tenor below 12 months or non-fresh funds receives 2.3% or less |
| StashAway Simple Guaranteed (Cash or SRS funds) | 3% | None | None |
Overview of the rates for a 3 month tenor
| Interest rate (p.a.) | Condition 1 | Condition 2 | |
|---|---|---|---|
| DBS | 1.0% | Min $1000, Max $19,999 | Any amount above $20,000 receives 0.5% interest |
| OCBC | 0.10% | Min $5000 | Any tenor below 12 months or other amount receives 0.5% or less |
| UOB | 0.35% | Min $5000 | Any tenor below 12 months or non-fresh funds receives 2.3% or less |
| StashAway Simple Guaranteed (Cash or SRS funds) | 3% | None | None |
Overview of the rates for a 6 month tenor
| Interest rate (p.a.) | Condition 1 | Condition 2 | |
|---|---|---|---|
| DBS | 2.9% | Min $10,000, Max $19,999 | Any amount above $20,000 receives 0.5% interest |
| OCBC | 2.7% | Min $20,000 | Any tenor below 12 months or other amount receives 0.5% or less |
| UOB | 3.10% | Min $10,000 | Any tenor below 12 months or non-fresh funds receives 2.3% or less |
| StashAway Simple Guaranteed (Cash or SRS funds) | 2.85% | None | None |
Overview of the rates for a 12 month tenor
| Interest rate (p.a.) | Condition 1 | Condition 2 | |
|---|---|---|---|
| DBS | 3.20% | Min $1000, Max $19,999 | Any amount above $20,000 receives 0.5% interest |
| OCBC | 0.10% | Min $5000 | Any tenor below 12 months or other amount receives 0.5% or less |
| UOB | 3.10% | Min $10,000 | Any tenor below 12 months or non-fresh funds receives 2.3% or less |
| StashAway Simple Guaranteed (Cash or SRS funds) | 2.75% | None | None |
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Frequently Asked Questions
For Simple, why is there a difference in the projected rate and actual returns?
The projected rate of a money market fund is an estimation based on the current investments, interest rates, and expenses of the fund. It’s expressed as an annualised yield; a snapshot of the current yield-to-maturity (YTM) of the underlying investments.
Here’s a few factors that can cause actual returns to differ from the projected rate:
- Interest rate fluctuations: The yields on short-term securities, in which Simple’s funds are invested, are influenced by interest rate movements. If interest rates rise, the yield on the funds' investments can increase, positively affecting actual returns.
- Rollover in the funds' investments: The fund manager buys or sells securities at maturity and in response to market conditions, impacting actual returns. To provide you with updated projections of returns, we rely on our partner fund managers projections.
Where does the volatility in Simple Plus returns come from?
Simple Plus is made up of ultra-low risk investments: short duration and ultra-short duration bond funds. In particular, short duration bond funds may see short-term price fluctuations due to interest rate changes, as underlying bonds are marked to market.
Here’s an example: imagine you lend a friend $100 for a year, and they promise to pay you back $102 – that's a 2% interest rate. Now, imagine shortly after, interest rates rise to 3%. Suddenly, you could have lent the same $100 to someone else and received $103 instead of just $102. Because of rising interest rates, your original loan doesn't look quite as good.
So, rising interest rates can reduce bond value, which can cause Simple Plus returns to be lower than the current YTM. But it's important to remember that this volatility is typically temporary. As long as the bonds are held to maturity, full yields can be reached. On the other hand, decreasing interest rates can cause price appreciation, leading returns to be above current YTM.
For Simple Plus, why is the recommended holding period 12 months or longer? And is the current YTM guaranteed if I hold my funds in Simple Plus for 12 months?
We encourage you to invest in Simple Plus with a view of holding it there for 12 months or longer, so you don’t have to sell at a loss when faced with short-term volatility, and to allow the funds time to reach their average target yield.
The current YTM is not a guaranteed rate, and is only a snapshot from the underlying bonds in the funds at a given time. Future returns also include the price fluctuations of these bonds. Because of this, there may be situations where overall returns are below or above YTM.