The idea of investing can appear intimidating at the start. But once you get the hang of it, it opens you up to a world of possibilities. Today’s article is great for students and new investors and will mostly focus on three classes of investments: ETFs, stocks and real estate investment trusts.
If you’re reading this, I’m guessing you already understand why it’s crucial to begin investing and most importantly, why you should start early.
To sum it all up, investing from an early age allows you to learn from your mistakes at a minimal cost. It will also allow you to compound your money and reach financial independence sooner.
Which type of Investment Assets should you invest in?
To begin, you must first decide what you want to invest in. The three asset classes we will discuss today are listed below.
1) Stocks
According to Investopedia, a stock is a security that represents the ownership of a fraction of a corporation. This entitles the stock owner to a proportion of the corporation’s assets and profits equal to how much stock they own. Microsoft Corporation (NASDAQ: MSFT) and DBS (SGX:D05) for example, are publicly-traded companies that you could invest in.
2) REITs
A real estate investment trust (REIT) is a company that owns, operates and finances income-generating real estate. MapleTree Commercial Trust (SGX: N2IU) is an example of a Singapore REIT. This company owns assets such as Vivocity and receives rental income from the tenants. If you become one of its shareholders, you would be entitled to the company’s dividend payouts.
3) ETFs
An exchange-traded fund (ETF) is a basket of securities that trade on an exchange just like a stock does. Instead of buying Apple and Microsoft separately, you can buy an ETF that invests in a variety of equities. When you buy the S&P500 ETF, for example, you are essentially buying into all of the 500 companies in the index.
Which asset class is best for you?
This is a basic overview of the three asset classifications.
Depending on your risk tolerance, you can have a combination of all three in your portfolio. Or if you don’t want to put in a lot of effort, I recommend opting for an ETF because it is the least volatile and requires less monitoring.
You could also look into robo-advisors which for me is an excellent option for beginners and those who do not want to invest actively but still want to benefit from the capital market.
Bonds, cryptocurrencies, mutual funds are other asset classes that you can look at but we won’t be discussing them in this post.
What should you buy?
After you’ve decided on the asset type that’s suitable for your investing goals, it’s time to decide on what to buy. Since every investor has their own viewpoint and risk appetite, you must make your own decision.
- Do you wish to invest in an ETF or an individual stock?
- Do you want dividends or capital gains?
- Are you comfortable investing in overseas stocks?
These are just some of the questions you can ask yourself as you start your investment journey. And as you do this, you will have a better understanding of your investing approach.
Examining what you’re consuming now is an easy way to figure out what stock you should invest in. Take, for example, your cell phone. If you currently own an iPhone, do you believe you’re trapped in the ecosystem? Will you still buy one if the price continues to rise? If you think you will, it’s probably because you believe Apple (NASDAQ:AAPL) has a strong economic moat and pricing power. If you won’t repurchase an iPhone and you believe Samsung or other phone manufacturers can take its place, then Apple may not be for you. After all, your portfolio is a reflection of how you see the world and everyone is subjected to their opinions.
Where to start learning about investing as a student?
Following financial blogs is another great way to learn about investing and find hidden gems. Here are a few that I recommend where you can timely investment analysis:
Dr Wealth
#shamelessplug. You may follow Dr Wealth for daily updates on what’s going on in the investment market, from equities to cryptocurrencies. I share my analysis here too, you can find my articles here.
Seedly
Although not specifically an investing site, Seedly covers a wide range of finance topics including personal finance. This is a fantastic place for new investors because the articles usually present analysis in bite-sized chunks, making it easy for them to digest. They also cover other investment styles and metrics ever so often, I’m sure you will learn something from.
Financial Horse
Financial Horse is one of the blogs I read regularly. They feature articles that are of excellent quality and yet simple to follow. Examples of topics they cover are how to traverse a high-interest environment and the analysis of cooperative actions.
The Fifth Person
The Fifth Person regularly provides AGM reports on companies in Singapore and Malaysia. If you’re too lazy to check out the annual AGMs, The Fifth Person will help you break down the key takeaways from it.
SeekingAlpha
SeekingAlpha is one of the world’s largest financial forums, where you can obtain up-to-date news, analysis, investing ideas and earnings calls, among other things. Keep in mind that if you are not a paid subscriber, you are limited to a certain number of articles per month.
Investment Moats
Investment Moats cover a wide range of subjects. Aside from investments, the writer also covers personal finance in his article, which I think is thoroughly written and presents well-reasoned arguments. Some pieces are also niche-specific which you may find interesting.
Aside from reading blogs, you can do the following if you’re enthusiastic and want to do your own research.
How I research stocks as a student?
- Review the company’s financial statements, which you can access on their website.
- Read the company’s financial statements which gives you a fairly detailed picture of its financial health and future prospects.
- You can also check out tools like Yahoo Finance, Finbox, and SimplyWall, which brings all of the data together so that you can access various KPIs in one place.
- It’s also a good idea to keep an eye on the Short Seller Report. Some websites, such as Muddy Water Research and Blue Orca Capital, publish short articles regularly about certain companies (Basically, when they think these companies are not worth the investment and their share price will drop). Their papers are extensive and go into great details to explain their point of view. Of course, you can decide not to believe these reports, but it does bear some weight in the market and may cause stock prices to fall. Hence, you need to exercise caution if you’re investing in these companies.
How to buy stocks?
Well, if you’re still reading, I’m assuming you are ready to invest. Let’s go to the next topic, which is how to buy. I’m going to divide this segment into three key markets: Singapore, the United States, and China. Each of these markets has its unique qualities.
For example, if you want to invest in Singapore, don’t expect your stock to increase significantly. On the other hand, the Singapore market is well-known for its dividend as there is currently no dividend tax, making equities and REITs particularly appealing to investors who want consistent income.
The United States and China, on the other hand, are of a different breed. At the point of writing, they are for growth-oriented investments. You’re more likely to uncover equities that could double or triple in value, and also see more fascinating developments in these markets.
It’s simple to start. You just need to open a brokerage account, deposit your funds, and then place your order.
Singapore
For more details, do refer to our detailed guide on opening a brokerage account and brokerage account comparison. Here’s a brief introduction:
There are two ways you can start investing in the Singapore market. The first one is through your CDP securities account. For this, you first have to open a CDP account with SGX and an account with a broker of your choice like DBSvickers and then link both of these together. Buying with your CDP allows you to store your shares in your own ‘vault.’ You are given pretty much a guarantee that the stock is in safe hands. However, this option is usually significantly more expensive, costing anything from $10 to $25 for every transaction.
If you’re just getting started, I think the second option – a custodian account, might be a better choice. Custodian accounts are available through brokers such as Tiger Brokers, MooMoo, and FSMone. With a custodial account, you store your shares with your broker rather than your CDP. As a result, you must accept some level of risk (which is very low) since a third party is storing for you. But the advantage is that commissions are often minimal, sometimes as low as $1. This enables first-time investors to begin their financial journey sooner. To be honest, I wish such development were available during the time when I first began investing. Back then, there was nothing like it. So, yes, now is a great time for novice investors to get started.
Personally, I use DBSvickers to buy my Singapore stocks at $10 and then FSMone to sell them at $10. A bit confusing? Well, I did it this way because it will cost me $25 to sell with DBSvickers, and although my method has a few extra steps, I get to save $15 per transaction.
If you’re just getting started, I recommend starting with Tiger Brokers or MooMoo.
US
If you want to invest in US stocks, all you have to do is open a brokerage account. You can choose from a variety of brokers. Personally, I use TD Ameritrade, which has a no-commission policy (though there will be a withdrawal fee when you withdraw your funds). Interactive Broker (IBKR) is another broker I recently opened an account with because IBKR had removed their $100,000 minimum balance requirement.
Finally, similar to Singapore stocks, Tiger Brokers or MooMoo are two alternative brokers to consider, which both have cheap commissions.
China
What if you’re feeling brave and want to invest in China? I personally invest with Tiger Brokers since it is really convenient for me. MooMoo or IBKR are two other brokers I would recommend.
If you notice, I did not use local brokers like DBSvickers and FSMone for my overseas stocks because most of them charge a monthly fee for facilitating and holding your assets.
How to monitor your portfolio?
It’s important for you to track your stocks after buying to ensure that they are still performing well. I’m currently using Stocks Café to keep track of my holdings and study my portfolio sizing. If you prefer Excel, you can use that as well. While it takes a lot more time, it allows you to tailor your file to your specific needs.
I also stay updated by reading news daily, including the company’s annual report so I can keep track of these stocks. If you’re in a rush, you can read financial blogs or watch YouTube videos about it. With the wealth of information available online today, there’s a high chance that someone would cover the latest financials of a company.
Keep in mind that the objective of monitoring is to ensure that the company you invested in is still performing well. If they aren’t, then it’s time to sell. You can also sell when you find a better investment opportunity that will double your money faster.
Don’t invest until you’ve checked these 2 boxes!
Hold your horses, there are a few things you should do first before investing.
1) Emergency Fund
First of all, make sure you have money saved up for rainy days. Depending on your comfort level, this fund might be anywhere from 6 months to a year of your salary.
You may wonder what the point is. Well, life is extremely unpredictable and you may encounter certain circumstances that could drain your bank account. When that time comes, this emergency fund will help you get by so you don’t have to take your money out of the stock market, which is prone to fluctuation.
Imagine you need $10,000 for medical care, but all your money is in the stock market and unfortunately the stock market is experiencing a correction. It will be tragic to have to sell at a low to get cash and then see the price rise back up.
What if you’re still young and are currently relying on your parents for support? In that case, you won’t need a large emergency fund, but you should still set aside some money for the rainy days. I would save up a few thousand dollars just in case.
2) Get Insured
Next, make sure you’re well covered. Before looking for any upsides, protect your downside.
One of the most crucial insurance is a hospitalisation plan, which pays for a portion of your hospital bills if you’re admitted to the hospital. As you may be aware, medical costs are high. Protecting your downside ensures that you do not experience a big loss of wealth when unanticipated circumstances occur.
Of course, hospitalisation insurance is only one type of plan. There are others, such as life insurance and critical illness insurance that you should look into. Nonetheless, if you’re a young investor who is just getting started, I believe a hospitalisation plan is enough (Ask your parents; they would most likely have one for you already).
P.S: Insurance is necessary, but make sure you pick the right one. Many insurance advisors advised me to get endowment plans when I was in the army in order to ‘grow my wealth’. Looking back, I’m glad I didn’t get one because it would be quite financially draining for me since I’m currently a student with very little income inflow.
Insurance agents may have approached you in the past or you might encounter one in the future. So, do your homework. Choose an agent you can trust and who really has your best interests in mind.
Final Advice
There is a lot of information about investing out there and it can be overwhelming. Investing is such a wide topic with different aspects. I hope that this article served as an excellent starting point for you to learn more about it.
I’d be willing to delve deeper into other topics such as dividend investment, growth investing, financial report analysis, and even personal finance such as saving and insurance. Just let me know what you’d like me to talk about! I’ve gone through the learning process, and I know there is a lot to take in so take your time.
But the final thing that I want to say is you should start now. I’m confident that once you put your money on the line, your learning curve will accelerate since your money is at stake. You can start with a little amount. What’s important is you at least do something and learn from it. While losing money is never desirable, I believe losing hundreds now is better than losing thousands later.
If you liked this, Bryan and I shared about how we approached money and investing in general in this interview.