PHOTOGRAPH: Sirirat Chinkulphithak, 123rf.com
Scrimping and saving alone will not give you financial security. “Compounding, or earning from an investment, has the power to convert a small amount of savings into a bigger and more comfortable retirement value,” says Anna Haotanto, director at Tera Capital, a private investment firm.
No amount is too small to start investing, as long as you always put aside enough money for your emergency fund, says Michael Tan, senior account manager at GYC Financial Advisory.
1 Buy an exchange-traded fund (ETF)
“For a start, you can consider buying an exchange-traded fund (ETF),” suggests Anna. An ETF is a financial product that is traded on stock exchanges, similar to stocks. When you purchase an ETF, you invest in a basket of different underlying assets at a go – without having to manage each investment yourself. ETFs own various assets, such as bonds, foreign currency, gold or oil futures, and divides them into shares that you can buy.
“One of the ETFs you can consider as your first investment is The Straits Times Index (STI),” says Anna. “STI is a blue chip index of the top 30 companies listed on the Singapore Stock Exchange (SGX).” A blue chip is a stock in a major company that will reliably turn a profit regardless of the wider economic climate, so your risk of making a loss is low. One of the key benefits of STI’s ETF is you can own the top 30 stocks in the SGX at a lower cost than buying individual stocks.
2 Go for a combination
Also look for income-yielding investment vehicles such as bonds, dividend stocks, dividend paying mutual funds and even rental income. These promise earnings with minimal risk at the end of a given time period, unlike stocks that fluctuate in price and may result in substantial losses.
Anna says, “A combination of ETF, mutual funds, Singapore saving bonds, and blue chip stocks is good for a healthy, diverse portfolio.”
3 Essential things to consider
Whatever vehicle you choose, always make sure the investment strategies are in line with your investment objectives. Unless you have a high tolerance for risk, stick to these conservative instruments, says Michael. If you are considering more aggressive or risky options that may have a higher growth rate, you must be prepared to make losses.
Another consideration is whether you can afford to set aside your investments for a long period of time. If you do not need liquidity and can put this money into “cold storage” for several years, Michael says you can take on higher risk and ride out the volatility of the market, meaning that even if the value of your shares falls, you can hold on to them until the market recovers. That is only if your total assets are enough for you to do without this sum of money.