One of the components of managing your personal finances is strategic investing, on top of wise budgeting and saving.
Done properly, personal investments can generate higher returns, compared with letting your money sit in a savings account.
Especially in today’s low interest rate environment, putting your money in the bank will only bring you abysmal returns, much lower than Singapore’s inflation rate (core inflation rate fluctuates around 1.9%).
Here’s how the base interest rates across Singaporean banks look like: (updated as of January 2021)
|Standard Chartered (Bonu$Aver)||0.0003|
|Standard Chartered (Jumpstart)||0.4% For $20,000|
|CIMB Fastsaver||0.3% (From 15/1/2021)|
|Bank Of China (BOC) Smartsaver||0.1-0.2%|
Many young adults tend to put off investing because they don’t know where to start. With unfamiliar terms and different investment products, it can be mind-boggling.Hence, if you’re looking to maximise your finances and plan for a secure future by growing your passive income, smart investing is the way to go.
So for the total beginners, here are some tried-and-tested principles that successful investors live by.
1. What to know before you invest
Get familiar with commonly used investment jargon, know your stocks from your bonds and connect with a mentor to ensure that you invest suitable amounts and in the right arenas.
Investing in ill-suited products or pre-maturely rushing into a certain investment could be detrimental to your hard-earned money.
So, before you pool your cash, do your homework and consider what type of investments best fit within your financial situation and goals.
Saving is essential
Unless you somehow have large sums of cash tucked away in your bank, getting into the habit of saving is important when you begin investing. Be wise with your financial choices and don’t overspend.
After all, investing is the next step towards financial responsibility and in order to do this, you will require some spare cash. As a guide, do remember to have 6-12 months of your expenses as emergency savings, before pooling in extra cash for investments.
Protip: If you are not sure how much your emergency fund should be, use our calculator.
Be prepared to be in for the long haul
Ownership investments, like stocks and property, are more volatile and hence, betting on them requires a resilient, long-term mindset.
It is recommended that you keep such investments for 5 years at the minimum, and if possible, 10 years or more before selling them to reap greater returns. Being in it for the long haul also allows your interest to compound.
Be realistic on expected returns
Investing requires patience, grit and continuous effort in monitoring the market. Even so, seasoned investors may only receive about 9 to 10% in returns from personal investments annually.
While there have been a handful of investing success stories, don’t expect to be an overnight millionaire. Instead, think of investing as the key towards gradual, long-term financial stability and an early retirement.
Riskiness of the investment
Before investing, consider the investment risks due to market volatility that come with each individual asset. What is the probability of making losses rather than returns from this investment?
Research the different types of risks that unique assets come with to make informed decisions.
Diversify your assets
Diversification helps you not to put all your eggs into one basket, ensuring that your investment portfolio contains a variety of assets in different markets.
By doing so, you minimize the risks tied to investing in only a single asset while simultaneously generating higher potential returns.
2. Know your risk appetite and investing horizon
Understanding your current and expected financial situation with regard to investing involves careful calculation of your risk appetite and investing horizon.
These factors exert significant influence over your investing behaviour and outcomes so you should ideally know them like the back of your hand.
Your risk appetite or capacity refers to how much risk you are willing to stomach and subsequently maintain when investing. Can you brave high-risks for prospective large profits or are you the more conservative type when it comes to money?
Your risk appetite will help guide which securities to keep in your portfolio and the allocation of capital across different asset classes. For example, stocks, while comparatively unstable in the short run, reward the biggest over time. Bonds are a relatively stable income source while mutual funds are suitable for the more prudent souls.
Determined by one’s personality, demographic factors like age and family situation as well as other factors like insurance and current net worth, people have vastly unique risk appetites.
Not sure how to assess your risk appetite? Take this short test to find out.
As stock markets can get vulnerable, investors worried about losing their money in instances where the market dives should take into account their investment horizon or the length of time that they plan to hold onto their investments for before purchasing stocks.
Newcomers not interested in gathering cash for retirement or making big ticket purchases can take up a medium-term horizon which involves low to high risk investments.
On the other hand, the more daring can choose a long-term horizon which accumulates larger returns from lengthier investment periods and possible recovery from any losses made.
3. Investment instruments for making small, monthly investments
Don’t worry if you cannot afford huge sums of money every month because making small investments regularly can be just as, or even more effective than one-off large investments.
Thanks to dollar-cost averaging and the fact that stock prices generally increase over time, your money will essentially attract more money when left in the market!
Read more: What Exactly is Dollar-cost Averaging?
Here’s a helpful summary of the various investment instruments available in Singapore:
|Type of product||How it works|
|Individual Shares/Stocks||Shares: the fraction of ownership one has of a company|
Stocks: a collection of shares of multiple companies or collection of shares in one company
Types of stocks suitable for individual investors:
The Singapore Exchange (SGX) offers a slew of stocks for you to choose from. But know your stock well before choosing to invest in it!
complements to stocks in an investment portfolio
|Exchange Traded Fund (ETF)|
|Real estate investment trusts (REITs)|
Of course, for each investment product that you would like to invest in, you have to keep in mind the pros and cons of each product.
To save you the trouble, here’s a quick overview of the pros and cons of each investment product:
|Type of product||Pros||Cons|
|Unit Trusts / Mutual Funds|
|Exchange Traded Fund (ETF)|
|Real estate investment trusts (REITs)|
Now that you know what types of investment products you can invest in, here are some platforms you can use to kickstart your investment journey!
4. Investment Platforms You Can Use to Kickstart Your Investment Journey
Direct means: CDP and brokerage accounts
In Singapore, buying and selling stocks independently requires a Central Depository (CDP) account and a brokerage account.
Central Depository (CDP) accounts, handled by SGX, provide integrated clearing, settlement and depository facilities for investors in the local market.
A brokerage account can be opened by those above 18 years old for the trading of stocks. There are tons of investment brokerage firms in Singapore, so comparison among their commission fees is vital in helping you choose the right one for your investment journey.
Here is an overview of the most popular online brokerage accounts with no extra fees that are compatible for trading with SGX:
|Account||Minimum commission fee||Trading fee (less than $50k)||Trading fee ($50k-$100k)||Trading fee (more than $100k)|
|DBS Vickers Cash upfront||$25||0.28%||0.22%||0.18%|
|Lim & Tan Securities||$25||0.28%||0.22%||0.18%|
|Maybank Kim Eng||$25||0.275%||0.22%||0.18%|
|Phillip Securities (POEMS)||$25||0.28%||0.22%||0.18%|
Assisted means: Robo Advisors, RSSs, Endowment Plans
As a small-time beginner investor, you might prefer a hassle-free, more passive approach towards investing. Hence, here are some investing platforms that offer just that:
1. Robo advisors
Want to invest with a small input and buy-in fees that are as low as possible? Robo Advisors may just be for you.
With humans out of the picture, these digitised investors charge an annual flat fee of 0.2-0.5% of your total account balance. They can even help you to branch out towards the global market, letting you get your hands on those valuable US-listed assets.
How it works:
After collecting personalised data (financial situations, risk appetites, future goals), these automated investment platforms enable small-scale investors to pool together their finances and make large, diversified investments via proficient algorithms.
In Singapore, robo advisors are loosely regulated by the Monetary Authority of Singapore (MAS) under the Securities and Futures Act (SFA) and/or the Financial Advisers Act (FAA).
This means that their operations are permitted as long as they gather minimal data on investors to recommend suitable investment types. They also gain approval as long as they have senior management members with relevant fund management backgrounds on board and offer non-complex collective investment plans.
So, while they offer a convenient means of investing, you should not adopt a total hands-free approach when turning to robo advisors.
Where to find them:
Singapore boasts 10 different robo advisor platforms. From ETF assistants (Syfe, Stashaway, UOB Asset Management Invest etc.) to robo advisors who help out with unit trusts and individual stocks (OCBC RoboInvest, Kristal.AI), the base investment amounts range from $0 to US$100.
Whatever the amount that you are comfortable with investing, you’re bound to discover a robo advisor for your needs!
(Read more: Interested in investing with Robo-Advisors? You can learn how to get started in this article!)
2. Regular Shares Savings (RSS) Plans
RSS Plans, also known as Regular Savings Plan (RSP) offer a medium-risk challenge to investors determined to invest on a monthly-basis.
How it works:
This long-term method of investment involves committing a small and fixed sum (as low as S$50-100!) into a certain investment product (REITs, ETFs, stocks etc.) every month.
Hence, they are highly viable for students with a regular part-time income stream, working adults who just started making coin or those who already practise saving monthly.
Where to find them:
There are 4 RSS Plans offered in Singapore, namely:
- Invest Saver by DBS Bank
- Regular Savings Plan by FSMOne
- Blue Chip Investment Plan by OCBC FRANK
- Share Builders Plan and Unit Trust Regular Savings Plan by PhillipCapital
These services offer investments in all kinds of assets, so if you’re dead set on getting an RSS Plan, be sure to look around before locking in your decision!
3. Endowment Plans
Endowment plans are insurance savings plans that offer lifetime coverage over a certain time frame. Much like normal investment schemes, endowment plans also encourage regular investing habits.
As endowment plans supplement clients with insurance services, they are suitable for couples with children to be used for their educational expenses, holidays or during retirement.
But, those who want to practise discipline with their finances while being protected under insurance schemes can also consider getting an endowment plan.
Types of endowment plans:
There are 2 types of endowment plans — participating and non-participating. The former promises a sum and potential additional returns in the form of bonuses while the latter does without any bonuses.
As with other investments, whether you should go with a participating or non-participating plan depends on your risk appetite. Be sure to do a background check on your insurer’s general performance and qualifications too!
The maturity period of endowment plans should also be of your concern. Those with a shorter tenure tend to be most attractive because it allows for swift access to funds.
When picking out an endowment plan, it is good to assess your future financial needs and goals to determine how long you should ideally keep it for.
Types of premium:
There are 3 types of premium: single, regular and hybrid. For single, the investor must pay a one-time lump sum upfront while regular premium stretches the payment over a period of time. Hybrid, as you might have guessed, has ambivalent qualities between single and regular premiums. This means that hybrid premiums are generally more flexible when it comes to first-time purchases.
Where to find them:
Here are some short-term endowment plans available in Singapore:
- SavvyEndowment 4 by DBS Bank (3 years)
- Goal 7 by Manulife (3 years)
- Gro Capital Ease by NTUC Income (3 years)
Here are some long-term endowment plan options for your consideration:
- SavvySpring by DBS Bank (12 years)
- MySavingsPlan by Aviva
- PRUFlexicash by Prudential (15,20 or 25 years)