33) Special Retirement Fund money into a Bond Fund

33) Should you invest your Special Retirement Fund money into a Bond Fund?

Below is one idea that you can consider.

This is related to investments using money from your Special Retirement Fund. Let's assume you have been contributing to a Special Retirement Fund (SRF). This SRF fund also has a required minimum basic savings.. As you grow older, the basic required savings is also higher. This SRF fund allows you to withdraw a certain percentage and invests into Unit Trusts funds every 3 months.

You had been withdrawing from this SRF Fund every 3 months to invest in an Equity fund. Over the years, the Equity fund made some money. You learned the concept of "Lock-in the profit". So, you want to switch the Equity fund profits into a Bond fund.

Let's assume you have a situation as below:

Equity fund invested with $30,000 initially had grown to $38,000. So, there is a profit of $8,000. To lock-in the profit, you decided to switch the $8,000 out of the Equity Fund.

You need to decide where to put the $8,000.
a) Switch to a Bond Fund
b) Return back to the SRF Fund

The SRF Fund has been giving a stable return of around 6% annually.
The Bond fund is giving around 4% per year.

So, it makes more sense to return the profit into the SRF Fund.
You should be able to make return of investment of 6% instead of 4% per year.

However, be aware of the SRF fund characteristics:
a)  Once the $8,000 money is back in, you won't be able to withdraw the $8,000 again. This is because you have to follow the maximum percentage withdrawal from the SRF Fund.
b) You can withdraw only every 3 months.
c) As you get older, the basic amount in the SRF Fund also increased. You may not be able to withdraw any amount again.

In Unit Trust Investment, there is a concept called Asset Allocation. You can diversify your investments into Equity, Bond & Money Market assets.

When the stock market is doing well, the Equity funds will normally increased in value.
However, when the stock market is in trouble, Equity funds will normally lost the most. Stocks price will drop in value and so will the Equity fund. The Equity funds is at a "discount"now.

If you had invested the $8,000 profit into a bond fund and the market drops, you have Ready money to switch back into the Equity fund at any time.

If you had returned back into the SRF Fund, you may not be able to withdraw the $8,000. If you don't have any extra money, you missed the stock market "discount" period.

So, this is the idea on why you should put your Special Retirement Fund into a Bond Fund.

Having said all the above, do remember that there are risks in different funds. The returns used above are just for illustration only. Do consult your Professional Consultants for proper advise.

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