Simple Singapore investment ideas that do not cost a fortune
Many of us are underwhelmed at the prospect of investment. The terminology appears both unexciting and overly complex for the majority of financial products and services. Moreover, it is easy to get the impression that the best financial products are available only for the mega-rich. On the other hand, these days, interest rates on a regular bank deposit are not expected to rise any time soon from very depressed levels.
Well the good news is that it is quite possible to start investing – and with relatively modest sums of money. Commencing on an investment journey will also give you some of the essential building blocks to fully understand and prepare for a better retirement savings program. This will make a meaningful difference to your lifestyle, particularly as you age. Of course you must ensure that before you invest, you have already set aside emergency funding and some savings, preferably in addition to your home loan. It is somewhat like ensuring you have a safety belt and air bag installed in your car! Only the most talented racing drivers can ignore the basics.
When it comes to your actual choice of investment, the amount of capital is only the most obvious limitation. Other key considerations are risk appetite and time horizon of the investment. Below we take a look at various investment options, starting from as little as S$500/month:
Starting with $500 a month
Exchange Traded Funds (ETF) or single stocks
For a beginner, a good way of getting exposure to the local stock market is via an automatic monthly investment plan in a well-reputed STI ETF. Consistently buying S$500’s worth of an STI ETF will allow you to take advantage of dollar-cost-averaging so you buy more when shares prices are low, and less when they are high. Clearly, selecting the broker will be important because the cost of the trades will have an impact on your returns.
If you are more experienced, you will be aware that since 2015, the Singapore Exchange (SGX) has reduced the lot size for common stocks to 100 from the previous 1,000. This has made investment in individual listed Singapore stocks, with the exception of blue chips which are more expensive, well within reach of most budgets. A similar approach of regular monthly investment in a basket of different stocks, about which you have done a lot of research, should make you money over the longer term.
Singapore Savings bonds
The Singapore Savings bond is particularly well suited to the risk averse. This investment is principal guaranteed, comes with a flexible redemption period, and allows you to invest up to 10 years with compounding interest. Although the interest rate is not high, at 2% annually on a 10 year-maturity, it is better than some bank deposits. And it is quite a good place to temporarily park cash for future investment (i) while you are doing your research on stocks and markets, (ii) just after you have taken some profits (or cut losses) on shares, and/or (iii) when stock markets are going through a severe downturn.
Blue chips or funds with $1,000
With $1,000 to set aside, you can look into buying those blue chips. Just as with any single stock investment, you will need to be familiar with how to do stock selection. Alternatively, the money could be invested in shares of a fund, including an index fund. A fund provides diversification in the same way as an ETF, that is it will contain a basket of shares. Some funds have better liquidity than ETFs, and are often better performers during market downturns because the manager can move into cash, which is not possible with an ETF. Trading costs are usually lower with ETFs. So always do your research prior to any investment.
Corporate bonds with $5,000
The Monetary Authority of Singapore (MAS) recently eased regulations, making corporate bonds more accessible for retail investors to buy. These bonds are issued by listed firms of varying quality. By buying a particular bond, the investor is “lending” funds to the issuer, receiving in return a fixed rate of interest as compensation until maturity of the bond. Corporate bonds will always carry a higher risk rating compared to government bonds, and investors must check the issuer’s credit ratings and financial profile before any investment is made. An unusually high interest rate will normally indicate an unusually high level of risk, and must be treated with extra caution.