Words by Budget Babe, Originally posted on Dr Wealth.
Why Saving Alone Isn’t Enough
I started taking interest in how to make my money work better for me after I saved up my first $20,000 After all, I knew simply keeping my money in the bank wouldn’t bring me far – on the contrary, the value of my savings would decrease over time once inflation rates and higher costs of living are factored in. If you don’t believe me, just ask your parents and they’ll tell you, $100,000 in the past could buy you so much more than $100,000 today.
But investing is not an easy journey, and definitely not for the faint-hearted. You need to be intelligent, well-informed, and rational enough to analyse financial figures to discern the meanings behind all the numbers.
On top of that, you also need to be prepared to take a certain amount of risk, and be able to manage these investing risks well…or lose your capital. Investing is not a simple matter of buying low and selling high, although that fundamental lesson remains essential for all investors to always bear in mind. Rather, investing is a conscious decision fueled by analysis and an in-depth thought process before clicking the “buy” or “sell” option.
[Free Ebook] How should you invest your first $20,000?
We asked 14 Singapore finance bloggers to share what they would do if they could go back in time and invest their first $20,000. They can no longer rewind time, but you can learn from their experience and hopefully start with a better footing.
I’ll admit, I was one of those initially scared by the thought of investing. My father had lost money in the stock market before, and I didn’t want to follow in his footsteps nor lose the hard-earned money I’ve worked so hard for. But if you learn how to invest and manage your investments properly, the payoff can be immensely rewarding in terms of capital growth and appreciation over time.
Let’s get started.
The First Step: Open Your CDP Account
First of all, before you can start investing in Singapore, you need to set up a Central Depository (CDP) account, on condition that you’re above 18 years old and not bankrupt. This account is where all the stocks you buy on the Singapore stock market are kept. You can do this in 2 ways:
- Open directly with CDP. Download the application form here and submit the completed form to SGX CDP Customer Service, which is located at 9 North Buona Vista Drive, #01-19/20, The Metropolis, Singapore 138588.
- Open via a licensed brokerage firm.
After your CDP account has been created (if you chose the former method), you’ll need to link it to your choice of brokerage firm via their own application forms.
If you choose option 2 (which was what I did), you can go straight to a brokerage firm and get them to create your CDP account on your behalf. The same CDP form will be given to you to fill out, and they will coordinate the rest for you.
Before You Can Open Your Brokerage Account…
Most brokers today will require you to first complete a (free) online course by SGX before they can open your brokerage account for you. Aside from the customer account review, the course consists of 7 modules explaining the different types of trading products available on the market.
Each module may take you up to an hour to complete, after which you can take the online quiz to test your knowledge of the market products. Your broker will ask you for your quiz score and assessment date to verify that you have indeed passed and obtained the basic educational requirements to qualify as an investor.
You may access the SGX online course via this link.
The Different Investment Options Available
There are tons of investment options out there in the market, but I prefer to focus only on the more common (and popular) ones lest I overwhelm myself.
Bonds are low-risk and recession-free; locally, you can choose from Singapore Government Securities (SGS) or Treasury Bills (T-Bills). And the new Singapore Savings Bonds (SSB).
When you invest in these, you’re lending your money to the government in exchange for interest payments. If you ask me, I have more confidence in lending my money to the Singapore government than any other country, as they know the importance of wealth-building and amassing emergency funds to keep our economy relatively stable in times of global crises. However, in return for this low-risk investment, you also get relatively lower returns compared to the other options.
Blue chip stocks are generally perceived as low-risk, and returns can vary depending on which company you choose to invest your money in. Some common blue chips in Singapore include DBS, Singtel, and Breadtalk. Most of us are familiar with these names, and it is highly unlikely for them to collapse either.
If you’re the sort who wants to spread out your risks a little more, perhaps an Exchange-Traded Fund (ETF) that tracks the market’s index performance as closely as possible might be more appealing. For instance, there are local ETFs that track the top 30 blue chip companies in Singapore based on their market capitalisation. This means that should one company drop out of the top 30, your fund will automatically change its investments into the new company occupying that rank. In this way, you can be certain that your investments are going only to the strongest 30 companies at any point in time.
Similar to ETFs are actively-managed mutual funds, which is what most non-financially savvy Singaporeans (including my mother) use. If you take the MRT, you might recognise such ads by companies like Aberdeen Asset Management. Most insurance companies also offer this.
In mutual funds, your money is pooled together with that of many other investors and managed professionally by a fund manager to be invested in a wide range of securities. In return for the convenience of letting an “expert” do the work for you, you usually pay a fund management fee. My mother has been investing in such a fund for a number of years now and it has served her well, but for someone like myself who prefers to DIY, I decided to cease this investment and do the legwork myself.
Properties can also be a great investment, especially if you have the foresight to pick one in a good location where the value will appreciate over time. For instance, my boyfriend’s parents purchased a 3-room HDB flat for $175,000 almost 10 years ago, and their neighbouring unit was sold recently for $450,000!
However, most of us as young investors will likely not have enough cash to afford to invest in actual properties. Hence the next best option would be Real Estate Investment Trusts (REITs). REITs usually provide unit holders with a regular dividend income which comes from rental payments, and capital gains if the space goes up in value.
I’ve saved the most interesting investment option for the last – stocks. The stock market can either be a really scary, or a really rewarding place to venture into. There are so many types of stocks to choose from, but first you have to understand your own mindset and the type of investor you want to be. Are you looking at these stocks for growth, value or income?
Personally, my biggest challenge in the stock market is identifying good company stocks, followed by buying them at the right price. After all, there are many good companies that are overvalued, and buying a good company at a high price will not necessarily mean it is a good investment. Many of the worthwhile companies I’ve singled out are priced too high for my liking at the moment, so I’m simply monitoring the market for a chance to enter when the price is right.
One word of advice – be prepared to do lots and lots of homework. If you don’t have the time for it, perhaps you might wish to consider other options that are less time-consuming.
What Investing Resources Should I Use?
My biggest teacher was…myself. I read extensively, devouring books on investments to arm myself with the skills and tools I needed before I started investing. Financial blogs were also useful because often, these bloggers would write their own notes and provide a summary of their learning points from various finance books. Note that there are many financial bloggers who do in-depth technical analyses – great for the savvy investors, but not so great for beginners like me.
Some books I have read and would recommend are:
- Rich Dad, Poor Dad by Robert Kiyosaki
- The 5 Rules for Successful Stock Investing by Pat Dorsey
- The Little Book that Builds Wealth by Pat Dorsey
These books are not only easy to digest, but also give a simple (yet not overly simplified) view of financial concepts and what you need to take note of before putting your money into investments.
Overcome the Nerves and Doubts
Will I lose money? Will I end up like my father? I’m not a very good math student, can I really do investing? Am I placing too much hope on this company? Am I being too skeptical? Everyone is telling me this is a good stock; should I buy it? What if I don’t listen and lose out?
There are thousands of questions I ask myself all the time. I always try my best to look out for anything that could possibly go wrong in my choice of investment. This means I take a much longer time to arrive at my investing decisions, but once I’ve made a decision, it is less likely for me to change my position for the long-term. I’m generally risk-averse, and even when I take risks in life, they are always calculated risks where I’m fairly certain I stand a good chance of winning. I applied these in my studies and career, and won. Alas, in the stock market, things aren’t always that easy.
The best advice I’ve gotten for investing can be summarised into 3 simple points, and I leave you with them as food for thought:
- Never rush to buy an investment.
- Do all your homework before you make an investment decision.
- Do not be afraid of missing out on opportunities. Be more afraid of buying into the wrong ones.