Why We (DollarsAndSense) Started Investing Our Excess Savings This Year

Over the past ten years, we have written thousands of articles about investing and why we need to learn how to invest in growing our wealth.

As individuals, most of us in the DollarsAndSense team invest.

Today, however, I will be sharing why we decided to start investing our excess savings as a company.

When we first started DollarsAndSense Business in 2020 to help real businesses make better financial decisions, one of the first articles I wrote was about why cash in the bank (and not profit) is the number one priority that business owners need to care about. In the article, I shared that companies need cash to survive and that a generally profitable company can fail if its cash flow isn’t well managed.

One way to build cash savings for your business is through retained earnings. Retained earnings are the cumulative net profits that the business has accumulated over the years. A profitable business can strengthen its cash flow position by saving and investing its profit, instead of paying it out to shareholders. 

Some investors don’t like retained earnings as they argue that such earnings mean that the company is not putting its cash to good use to earn higher returns, and that companies should pay out their profits to shareholders in the form of dividends.

I disagree with this view. For me, I think retained earnings give management the flexibility to tap into the funds whenever an investment opportunity presents itself. This could be to expand overseas, acquire another company, or buy a commercial property.

Higher Interest Rates Encourage Companies To Shift From Being Borrowers To Lenders

If you ever wondered why higher interest rates slow down the economy, here’s an easy explanation.

When rates are low, it makes sense for companies to borrow and invest in growth. This is because when credit is cheap, companies can borrow cheaply, make returns on the money they borrow and generate more profits after accounting for the interest they have to pay.

Companies may even borrow when they have cash on hand. For example, this article from The Washington Post explains why Apple decided to borrow $14 billion even though it has about $200 billion in cash and marketable securities.

The reverse also holds. When interest rates are higher, companies have fewer incentives to borrow. Those who hold sufficient cash might even be drawn towards becoming a lender and to earn returns on the money they lend out.

Investing In Money Market Fund Via Endowus Cash Smart

To invest, we decided to use a FinTech Investment Advisor that we are already familiar with, Endowus.

While most of us would know Endowus as a robo-advisor that serves individuals, far fewer might be aware that Endowus also provides corporate solutions for companies, charities and family offices looking for treasury management and institutional advisory services.

Like what they have already disrupted on the retail front where they provide low-cost investment access and solution to many retail investors, Endowus also hopes to disrupt the institutional market by providing easy and affordable access to companies wanting to invest.

No longer would you need to be a large MNC with millions of dollars at your disposal to invest before you can be considered an institutional investor. Your corporate account’s access to investment products is largely the same as your personal account.

For DollarsAndSense, after consultation with our dedicated advisor, we decided to go with a simple, fuss-free investment solution with minimal volatility. And this was to invest in money market funds as a corporate account, via Endowus Fund Smart.

With Cash Smart, we choose the Fullerton SGD Cash Fund.

According to information provided by Endowus, the current net yield of the fund since we started investing is 3.81% as of August 2023. This is in line with the projected return of 3.7% to 4.0% p.a. after fees as of 25 May 2023 when we first invested.

You are free to choose any portfolio you want.

How Much Returns Have We Made? 

At the point of writing (25 May 2023), we have invested for about two months and have generated a return of about 0.59% ($589) in two months. This is in line with the initial projection and we hope that as market interest rates remain high, the returns we earn will remain sustainable.

While a few hundred dollars may not mean much for many companies, it’s worth pointing out that over one year, a 3% return on $100,000 would be $3,000. For companies with excess savings of $1 million, this will return $30,000 per annum. This isn’t negligible.

Since then, we have increased the amount put into this portfolio. As such, you can see from the screenshot below that our total quantum has increased and similarly, our gain for the year has also increased to 0.99% ($3,449) as of 11 September 2023.

A few things are worth pointing out.

Even though we personally invest in higher-risk products like stocks and ETFs, when it comes to deploying funds from the company, we take an extremely risk-averse approach as DollarsAndSense is a media company and not an investment fund. So even though we are confident we can generate higher returns from the financial market, we are not willing to take the risk with the company’s fund.

Some of the attractive functionalities of the Endowus interface are also available for corporate clients. If your firm is mandated to invest long term, you may also invest in the Endowus-advised portfolios or in equities funds. You can also conveniently convert your currency at wholesale rate, and invest in foreign currency-denominated options.

The fund that we invest in is a very low-risk and highly liquid investment. If we need to withdraw the funds, we can do it quickly with minimal fuss or losses.

While we can (and will be) investing more soon and don’t expect any losses from this fund, we are still taking a very conservative approach of not investing all the excess savings we have.

For us, this means having more than enough cash savings in our business account to deploy the funds we need whenever the opportunities arise, without having to think of making any investment redemption.

By investing in money market funds, we aim to ensure that we make returns on capital we don’t intend to deploy anytime soon. This decision to invest should not hinder our ability to make business decisions as we still retain a sizeable chunk of our capital in cash.

If you are interested to find out more about how your organisation can open an Endowus corporate account to start investing, you can fill up this form here. DollarsAndSense Business and Endowus have a special promotion for you where your organisation can get $500 worth of Endowus Fee credit for the first 6 months. Find out more about this exclusive promotion here.

Read Also: What Is PayNow For Business (PayNow Corporate) And 4 Reasons Why Businesses Should Adopt It

This article contains affiliate links. DollarsAndSense may receive a share of the revenue from your sign-ups. You can refer to our editorial policy here.

This article was first published on 6 July 2023 and we have updated it with the latest information.

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