Easy ways to invest in stocks online
Experts clue us in on how to choose an online broker, research the market and decide what shares to buy.
It used to be that if you wanted to invest in shares, you had to engage a personal broker and then instruct him on what to buy and sell. These days, however, investing has become a DIY task as the whole process can be done online.You simply key in your order online and pay the commission charges to the online broker.
Not only is this a faster and more convenient way to invest, but the commissions you pay to an online broker are also a lot lower than what you’d pay to a personal broker. So which should you invest with, and how do you decide what shares to buy?
FINDING A BROKER
If you’re new to investing and wish to trade on your own online, you’ll want to make sure that your online brokerage firm is reputable and reliable. The good news is that all brokers have an online platform – but how can you tell if the company is reputable and stable?
Adam Khoo, a professional stocks and Forex trader, and chairman of Adam Khoo Learning Technologies Group, says there are a few things to look out for: How much the online firm charges for commission, its financial strength and stability, its credit rating, how long it has been around, whether or not it is insured, its product range – for instance, does it also let you trade stocks and bonds?– and the standard of its customer service.
All these can really make a difference to your DIY investment experience. You will then need to open a trading account with the firm, as well as a securities account with Central Depository Pte Ltd (CDP).
It is a wholly owned subsidiary of Singapore Exchange Limited (SGX), an investment holding company that provides different services related to securities, derivatives trading and others. According to Alfred Chia, chief executive officer of Singcapital, one of the main functions of the CDP is to act as a central counter party. It becomes the buyer to each seller and the seller to each buyer.
This way, it assumes the buyers’ credit risk and the sellers’ delivery risk, and eliminates settlement uncertainty for market participants. The CDP is also a central security depository that acts as a trustee for investors. All shares bought on the market are “kept” there, which reduces risk.
UNDERSTANDING COMMISSION CHARGES
To buy Singapore shares online, select a local broker, says Adam. Local broker fees are quite competitive –a minimum of about $25 or so per transaction. Some local brokerages to check out online include CIMB Securities, Maybank Kim Eng, Poems, DBS Vickers, and StandardChartered. In addition to offering Singapore shares, they also let you trade in overseas markets. Maybank Kim Eng, for example, also gives access to the Malaysian, US, Hong Kong and Thai share markets.
If you want to buy US shares, you can also use an online Singapore broker, but the charges would be high – about $50 per transaction at least, says Adam. A US-based online brokerage firm, on the other hand, would only charge you about US$9 (S$12.20) or US$10 per transaction. “If you want recommendations for a US broker, or any other brokers based overseas, visit a website like www.brokerage-review.com,” says Adam. “It compares all the big firms worldwide, excluding Singapore, by looking at variables like commission charges, product range, customer service, financial strength, and so on.”
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DOING YOUR HOMEWORK FIRST
Investing is easy but having a profitable investment is hard if you don’t do preliminary research.Before deciding what shares to buy, Adam suggests asking yourself if you want to be a short-term trader or a medium- or long-term investor.
“How long you wish to hold on to your shares can influence your investment choices,” he says. “Short would be anything less than six months, medium ranges between six months and three years, and long is anything more than three years.”
Next up: doing your homework. When researching the companies you want to invest in, Alfred recommends studying their balance sheets, income statements, cash flows, projected earnings growth, the management team and other financial and non-financial matters. As this process is time-consuming and can be confusing for new investors, research reports are very useful as these would cover everything you need to know to make an informed decision or opinion.
“There are many websites that offer research reports,” says Adam. “If you’re a short-term trader, the money section on www.investor.com is quite useful.
Long-term investors may wish to look at www.morningstar.com.
You can also read company reports at the Reuters, Yahoo Finance and Google Finance websites.
PAYING TAXES ON DIVIDENDS
As a shareholder, you are entitled to dividends, which is a payout from the company you bought shares in. Dividends are paid out regularly, regardless of what happens to the share price. Think of it as a return on your investment, or as an extra incentive to own shares in stable companies even if they are not experiencing much growth. Based on current Singapore tax laws, dividends are tax-free if you are a shareholder.
If you buy US shares, Adam points out that you will have to pay 30 per cent tax to the US government. If you sell your shares and make a profit, this is called capital gains. If you’re a Singapore citizen, you will not be taxed on capital gains.