Start investing with small capital
“I do not have a lot of savings, how do I start investing?”
“How much money do I need before I can start investing?”
“I am worried about my retirement. I want to create more future income, but I don’t know how.”
“Investing is risky; I don’t know where to start.”
Do those questions sound familiar to you?
Despite everything that you may have read or heard, investing does not need to be a high-risk activity. Nor do you need a huge amount of capital to start. But as with most things in life, it is prudent to begin (in this case, your financial journey) early. This will allow you to steadily accumulate income, and ultimately a certain level of financial wealth. While there are many so-called sophisticated investment opportunities appearing all the time, most of these can be safely ignored. It is better to stick to a simple approach to investment, as the long term results may be surprisingly satisfactory.
Here are some ideas on where to start.
Step 1: Bonds
The recently introduced Singapore Savings Bond issued by the Singapore government, enables individuals to start investing from as little as $500. Although it is a 10-year bond, there is no lock up period, and redemption is possible well before maturity. The bond earns a much more attractive interest rate compared to savings accounts at banks, so it is an ideal (one could say preferable!) alternative to a liquid asset such as cash.
In addition to the Singapore Savings Bond, retail corporate bonds for higher interest rates and (usually) shorter maturity, can also be considered. Currently, however, the Singapore retail bond market is rather small and only three companies – Aspial Treasury Private Limited (Aspial), Oxley Holdings Limited (Oxley) and Perennial Real Estate Holdings Limited (Perennial) – offer retail bonds that small capital investors can buy. The minimum subscription is $2,000 per tranche. Following an initial offering period, retail corporate bonds are traded on the Singapore Stock Exchange (SGX) and may trade above or below par. Do note that you will incur your usual brokerage fees when you buy on SGX. Also, bonds might not be suitable for everyone. Therefore, as with all investment, it is prudent to research as much as possible about the underlying issuer, including checking the credit rating, prior to any investment.
A much riskier ‘debt-type’ investment choice would be lending your money to a small company via a crowd funding agency. One such platform is MoolahSense. Given the risky nature of some of the borrowers, the platform offers a wide range of interest rates, including many which are high, and maturities. There may or may not be coupon payouts before maturity. One significant risk to state is that such platforms are not currently regulated by the Monetary Authority of Singapore (MAS).
Step 2: Equities
Though usually riskier than bonds, equities are still a good long term investment. Investors can consider accumulating blue chips via the various blue chip investment plans available from Singapore brokerage firms. With these plans, usually no more than SG$100 per month is required to be invested. If you are happy to put aside money out of a monthly salary to start accumulating blue chips, this is a simple but effective way of obtaining long term income, especially if you select high dividend paying blue chips. This style of investment is known as dollar-cost averaging, and has a long term track record of success across most equity markets. But remember to consider your own risk appetite, and select your stocks well!
Step 3: Leverage
For individuals who want to engage in trading but do not have sufficient capital to trade on cash accounts, leveraged trading is a possibility. Leverage trading allows you to start trading with only a fraction of the full cost of the investment. You can choose from a variety of products such as equities, commodities, forex and indices. However, leverage is exclusively for individuals with an extremely high level of risk tolerance because leverage trading can incur huge losses. Most individuals with a small amount of capital should probably not even consider this kind of investment. Do not engage in high risk trading unless you have a lot of experience, and can afford to sustain huge losses!
Step 4: Self-investment
Investing in yourself might be the best idea of all, especially when you are young. Sign up for training courses (especially if your employer is paying!), or master a new skill in your spare time. Nowadays, there are many free or low-cost resources available on the internet or at your local library. Books and e-books are always a good investment.