Investing is a buzzword in the personal finance sphere, and not without good reason. A step up from simply saving your money, investment can help you to grow your money as a bulwark against rising costs of living.
According to Gobear’s Financial Health Index, 74% of Singaporeans are already actively investing. Apparently, 56% of teenagers and young adults between the ages of 18 and 25 years old have already started investing.
Out of the 1,028 survey respondents, 40% were self-motivated to start investing while 60% were advised by family and friends to start investing. This means that Singaporeans are no stranger to investing.
But some people are still wary. Of the remaining 26% who have not started to invest, some of the reasons cited were "not having enough money", followed by not sure "how to find out more". Only 7% of Singaporean have no interest in investment as they think their current finances are sufficient to sustain them.
If you belong to the 26% and want to learn how to invest, get started by first understanding the below.
1. Your risk profile
Figuring out your risk appetite is important when selecting the investment instruments to use. There are investment products that are relatively low-risk, such as an endowment plan or a retirement annuity plan. Of course, low-risk investments also translate to relatively low returns.
On the other hand, if you find that your risk appetite is higher, you can invest in the stock market. You will need to monitor market conditions and also research on the fundamentals of the companies that you are investing in.
The higher the risk, the higher the potential returns. But, there is also a possibility of losing much, or all, of your capital.
2. How fast or how slow
You do not need to fix your risk profile when you invest. Another way to think about it is how fast or slow you want to go.
For long-term goals, you may want to secure some low-risk investments. These are things like retirement or saving for your child’s university tuition fees, where you probably don’t mind lower returns within the 2% to 5% range, since you will be locking away the money for a long period of time.
If you have set aside your emergency fund and are well-insured, you may want to try investing excess money in higher-risk products by actively trading stocks. Even among stocks, there are the highly volatile ones and not-so-volatile ones. As an investor, you need to read up and stay abreast on the factors that affect your stock, from geopolitical conditions, pandemic situations to trends in the market.
No matter fast or slow, time is your ally when it comes to investing. When it comes to investing, the earlier, the better.
3. Your budget
If you are putting your money at risk, it is wiser to invest disposable income. For young working professionals, the first steps of a financial plan would be to secure at least six months worth of essential expenditure as your emergency fund and some essential insurance coverage such as a life insurance policy or a hospitalisation plan.
Work these expenses into your overall budget and factor in your monthly utilities, bills, savings and loan repayments.
From the remaining money, derive an amount to invest with. For a start, you can buy with stocks starting with around 100 units, which might cost you just several hundred bucks depending on the cost of the stock.
Additionally, you can also invest with your CPF money. Simply open a CPF Investment account with an approved CPF Investment Scheme (CPFIS) agent, and you can use the account to invest in stocks, unit trusts and bonds.
In terms of what portion of your salary you should allocate for investments, it’s really up to you, as long as you have committed to put aside a good sum of emergency fund and are insured for you and your loved ones.
4. Investment product types
There are different types of investment products available for you if you would like to start investing. You can purchase single stocks, savings bonds, ETFs, unit trusts or REITs.
Single stocks: Investors buy stocks to help companies raise money in order to grow their businesses. These stocks can be sold. Can be volatile and high-risk.
Savings bonds: A type of Singapore Government Securities. Individual investors can buy using cash or funds in CPF’s Supplementary Retirement Scheme (SRS). The longer you hold the bond, the higher the return. The minimum sum to invest is $500. Relatively low-risk.
Exchange-traded fund (ETF): An ETF is a basket of securities. It can hold assets such as stocks, bonds, and commodities. They are similar to mutual funds, but trade like stocks. Moderate risk.
Unit trust: Unit trusts, also known as mutual funds, allow funds to hold assets. It usually has a diversified range of assets, meaning it is relatively low-risk. Singaporeans can invest with cash, money from CPF Investment Scheme and SRS. Relatively low-risk.
REITs: REITs use investor money to buy, operate and manage properties. You earn dividends when the properties earn rental income. Risk depends on the volatility of the particular real estate asset.
5. Fees and charges
There is a myriad of investment brokerage as well as robo-advisor platforms that encourage beginner investors to invest their first pot of money. Whichever platform you use, make sure that you know the accompanying charges and commission you would have to pay towards your fund managers. Don't be afraid to shop around for the best platform available for your needs.
As you can see, investing doesn’t have to be impossibly complex. Getting educated is the first step. You can plan and put your first pot of money towards a low-risk investment product next. Good luck!