Beginner’s Guide to Investing in Stocks in Singapore: Everything You Need to Know
If you are a new investor who is just starting out, aside from mutual funds, one of the first things that you would probably be interested to find out more about is likely to be stocks, or otherwise known as equities.
This is because it is widely believed that a well-planned out stock investment strategy is a viable way to accumulate wealth in the long term.
Stock trading also happens to be a less intimidating way to dip your toes in the world of investments as it is relatively convenient and inexpensive these days.
Last but not least, it is probably better than just leaving the whole amount of your money in a savings account and earning the paltry interest rates that are on offer from the banks right now.
So if you are keen to add stocks to your investment portfolio, here are eight steps to get yourself started.
#1: Be clear on your objectives and what it takes
Before you even buy your first piece of stock, it is prudent to first align your expectations with the corresponding risk that stock trading entails before putting your money into it.
Investing in stocks is usually more suited to those with higher risk appetite and who are not content with the relatively lower potential returns you will receive from mutual funds.
It also requires you to be more of an active investor and thus end up taking up more of your time. This is because holding just one, two, or even a small number of stocks means that your risk is not as spread out as compared to when you are invested in a mutual fund, which in essence consists of a diversified portfolio of stocks.
As such, you need to constantly be on the alert to monitor your holdings in case the market turns against you at any given time.
That being said, opting for passive investment in mutual funds does put a limit on the upside you can earn; whereas, as mentioned earlier, if you play your cards right, a smart stock investment can bring a bountiful return.
#2: Open a central depository (CDP) account
To start trading stocks in Singapore, you would need a CDP securities account. The CDP account safeguards the shares you have purchased in the local stock market.
The CDP account is administered by SGX CDP, an organization that ensures the smooth operation and settlement of transactions in the domestic bourse.
There are three types of CDP accounts that can be opened – individual, joint and corporate accounts. But in this article, we will only be focusing on individual accounts.
At least 18 years old
Not be an undischarged bankrupt
General documents you would need include:
Copy of either:
a) Bank statement from any MAS licensed bank
b) Central Provident Fund (CPF) statement
c) Notice of tax assessment.
There are three ways to open an individual account:
Mailing in the application form and supporting documents
Over the counter at the CDP
Over the counter at any SGX-ST Member broker
For first timers, it is recommended that you open your individual account over an SGX-ST Member broker counter. That way, you can open your trading account too and link them at the same time.
Your CDP account can be linked to multiple brokers and holds all the shares you have purchased through your brokers.
#3: Open a trading account
A trading account or brokerage account is an account you have with a brokerage firm that enables you to buy and sell shares.
You can’t trade stocks without an account. Before making your decision on which entity to open an account with, it would be advisable to do some information-gathering to compare them in terms of fees, services, research tools and other aspects.
Here are some brokers and banks in Singapore where you can open a stocks trading account:
It is also important to always ensure that your broker is properly licensed. You would typically be depositing at least a few thousand dollars into your trading account and you want to make sure that your money is in safe hands.
Conduct your due diligence and check if they are listed as a broker with the Monetary Authority of Singapore (MAS).
Also, do not fall prey to online brokers that offer cheap fees! Trading with them may put you at risk. Ensure that you find out about their reliability through online forums and user reviews before committing to opening an account with them.
General documents you’d need to open your account:
Bank account statement issued within the last three months
Latest tax statement
Supporting documents for mailing address
The entire process of creating a trading account and CDP account should take less than 10 working days to approve.
#4: Link your bank account
It’s a good idea to have a bank account in Singapore that is linked to your CDP account so that you can activate automatic payments for your transactions via GIRO to and from your account, rather than having to do it manually each and every time.
And instead of needing to set aside an amount every month for trading, you don’t have to feel the pinch of saving and investing a lump sum, knowing you’ve already automated it with GIRO payments.
You may opt to have a bank account with the broker you have chosen, but that’s not necessary.
If you do not yet have a bank account in Singapore or would like a separate bank account just for trading, you can open one over the counter when you head to open your trading and CDP account at the brokerage firm.
#5: Determine your investing game plan
So you have made it this far and now you’re all set to invest in your first stock. But with so many stocks out there, how can you decide which ones to pick?
The first step is to determine how much of your capital is going to be allocated to stocks. Just as it applies to any other asset class or investment instrument, you should avoid putting all of your cash solely into stocks.
Furthermore, it would be advisable to have the mindset that the cash you set aside to invest in the stock market should be money that you can afford to lose.
For years, a common rule of thumb has been used to simplify the asset allocation process. Basically, this theory states that you should subtract your current age from 100 – and the resulting number is the percentage of your portfolio that you should keep in stocks.
So for example, if you’re 35, you should keep 65% of your portfolio in stocks. If you’re 50, you should keep 50% of your portfolio in stocks.
However, there are those who claim that this approach is now outdated and no longer applicable.
Thereafter, assess your personal risk appetite. Risk and returns usually go hand-in-hand; so if you are seeking higher returns, you should expect a higher level of risk, and this applies to stock-picking too.
For those who are more risk-averse, a good tip is that if you happen to prefer low-risk investments, and are looking to hold for the long term, you might want to look at blue-chip stocks with a high dividend yield. Blue chip stocks in Singapore are known to be popular, not just with fledgling investors, but also even with the seasoned veterans.
As mentioned earlier, investing in just one single stock or even a few different stocks can be a high risk, high reward endeavour. As such, another way to try and reduce risk is to have enough diversification in terms of your stock holdings so that there is a balanced look to your portfolio that can help counteract underperformance in a particular segment.
You should also cultivate a habit of keeping yourself up-to-date on daily financial news and data such as earnings reports, changes in government policies, employment figures, central bank interest rates, commodity prices and other crucial bits of information that could help you in your investment decision-making.
#6: Picking out your stocks
After you have assessed your capital and risk appetite, it’s time to proceed to start selecting a stock.
There are two methods of analyzing stocks: technical analysis and fundamental analysis.
These two methods need not be mutually exclusive; in fact, many investors use a combination of both in order to help them with their stock selection. No one type of analysis is better than the other, so do explore both and find out for yourself which one suits you better.
Technical analysis is essentially the study of supply and demand forces for tradable instruments in a particular market.
The objective is to try deciphering the market signals so as to predict the future price movements of those said instruments.
Technical analysis is recommended for those who are comfortable with charts. Its advantage is that it can be used in a whole range of time frames depending on the user – intra-day, daily, weekly and even beyond.
An expert in the technical analysis even developed a new approach that enables investors to use multiple time frames and integrate them in order to identify both medium and long-term trends.
Fundamental analysis is the study of the financial health of the actual underlying company to determine the value of the stock.
This involves inspecting the 3 financial statements: the balance sheet, cash flow statement and income statement.
The best type of stock investment always has the right mix of quality and value. By quality, we’re referring to aspects such as:
attractive dividend yield
good earnings growth
strong balance sheet
healthy cash flow
By value, we are considering the current price of the stock relative to a specific performance metric such as sales or profits.
An example of this would be the price/earnings (P/E) ratio, which is perhaps one of the most popular ways to assess a stock’s value. To determine whether a stock is worth considering, you should compare its P/E value relative to the same benchmark for the stock’s particular sector or even the overall market itself.
There was even a study that concluded that to obtain the best long-term returns you should focus on stocks that are trading at the lowest valuations, i.e. the lowest P/E ratios.
It might also be a good idea to attend investment-related events. Organizations such as the SGX and Securities Investors Association of Singapore (SIAS) frequently host seminars on stock investing in Singapore. Securities firms, such as Maybank Kim Eng, also often organize seminars of their own to educate the public on investment matters. Look out for them! Sometimes, they might even host it free. You could even learn from the comforts of your home by logging on to online webinars such as those conducted by IG Singapore.
#7: Decide on stocks to invest in and monitor it
You can even trade your stocks online. Some online platforms are customizable and equipped with comprehensive trading tools that can help you monitor your stocks, as well as make better trading decisions.
Here are some online platforms that can help you in monitoring your stocks, as well as assist you in deciding which stocks to invest in:
Maybank Kim Eng offers an award-winning mobile app for trading, the KE Trade Mobile. You will even be able to access your watch-list, indices and quotes on the go via your Apple Watch!
IG Singapore offers both a web-based and a mobile app for its online trading platforms. What’s more, its mobile app can not only be used on Apple and Android phones but even on Blackberry devices!
#8: Keep calm and invest
Investing in stocks can be an emotional affair. It is the nature of the stock market for prices to rise and fall, sometimes by a substantial amount.
As such, it is crucial to get a handle on your feelings and not fall into the trap of getting sucked into trends and hearsays without conducting your own necessary due diligence.
As the wise Oracle of Omaha, Warren Buffett, would say: “To be a successful investor you must divorce yourself from the fears and greed of the people around you, although it is almost impossible.”
If you have already done the necessary groundwork in terms of your stock-picking process, you should not be distracted from your investment thesis. Even if things do not seem to be going your way, do not make premature knee-jerk reactions without assessing the situation rationally.
Remember that a crucial goal for investment is to beat inflation! Be disciplined and stick to your original investment game plan so that you can achieve your long-term goal.