Q I have always been very apprehensive about investing in funds as opposed to the safer option of putting my money in fixed deposits.

However, after reading in your pages recently that interest earned from fixed deposits will be eroded by rising inflation rates, I am reconsidering my investment options.

Are there low-risk investments out there that offer higher returns than fixed deposits? Also, how much of my income should be used for investments?

I currently earn $4,000 a month, and after expenses, including servicing a car loan, I am left with $1,500, which I leave in my savings account. When the savings accumulate into a bigger sum, I put them into a fixed deposit account.

A From the concerns you have raised, you seem pretty risk averse and have a strong preference for liquidity.

In my view, you should consider an anticipated endowment where certain returns are guaranteed by an insurance company and you can withdraw about 60 per cent of your annual premium from the third year onwards.

Traditionally, this 60 per cent is placed with a deposit held by the insurance company.

You can consider NTUC Income's revosave plan, which also allows you to invest this portion in global funds without any sales charge. You would increase your return tremendously without taking too much risk, especially if your investment horizon is long.

From an asset allocation point of view, the investment in this product would have a moderate risk profile as about 60 per cent of its funds are invested in equities while the remaining money can be perceived as long-term fixed deposits with the insurance company.

The issue of the amount of savings required in your case depends on many factors such as the lifestyle that you want to have in your retirement years and the period of time you have in which to accumulate the funds.

Assuming that you want to maintain your current lifestyle of $2,500 in monthly expenditure and inflation of 2 per cent, you will need a nest egg of $1 million if you want to retire in 30 years' time. You would invest the monthly $1,500 at a conservative rate of return of 4 per cent.

In my experience, the execution of your retirement plan depends greatly on the consistency of your monthly contribution towards your retirement fund. People are often distracted from this goal by material desires.

There is always a reason to justify why you don't have to save this month and it will become increasingly harder to save as your personal financial commitment increases with age. In short, it pays to cultivate the savings habit early.

This article was first published in The Straits Times on April 27, 2008