To new investors in Singapore, the stock market presents a bewildering range of options. There are dozens of systems and methods of investing, all with their pros and cons. So how do you start investing!?
5 popular investing methods in Singapore
If you tallied every book ever written on investing, you’d account for the deaths of at least two rainforests. While the variety is confusing, it exists for a good reason: almost no one agrees on a single, best way to invest.
Instead, investment approaches fall into 5 basic methods. We’ll take a look at them in greater detail below.
What to invest in
ETFs, robo advisors
Active stock picking
REITs, blue chip stocks, bonds
Crypto, forex, penny stocks
Insurance products, unit trusts
Investing method #1: Passive investing
Passive investing is suitable if you want to keep decision-making to a minimum, perhaps because you lack the knowledge needed to actively manage your portfolio. You just want to put aside some money and let it grow.
ETFs, or Exchange Traded Funds, are very popular with passive investors. ETFs track an index that is pegged to a basket of assets. For instance, the Straits Times Index or STI, Singapore’s most well-known ETF, tracks the top 30 companies on the Singapore Exchange (SGX). By investing in the ETF, your investments are much more diversified than if you were to buy one single stock.
The cheapest way to buy and hold ETFs is via an online investment brokerage, which you can compare on MoneySmart.
Robo advisors like Syfe, Stashaway and AutoWealth offer another passive way to invest. These digital investment apps help you invest your money according to your goals and risk appetite, which you can specify on the app as quickly as you write a Tinder bio.
Most make their investment decisions using algorithms, so, no humans involved. Robo advisors’ portfolios can include ETFs, amongst other things.
If you want to be really passive and not even bother tracking the performance of your investments, you can use a dollar-cost averaging method. You would invest a fixed sum of money at regular intervals, such as every month. The idea is that over time, your consistency will help you to ride out any market volatility.
You also just transfer and buy ETFs every month the old fashioned way, or you can opt for a regular savings plan which automates your investments.
Investing method #2: Active stock picking
Passive investing may be convenient and easy, but also tends to be a relatively slow and unambitious way to grow your money compared to methods which require more active involvement. You might not be content to just buy the ETF and call it a day.
If you have the know-how to pick your stocks and time your entry into the market, you can potentially enjoy higher returns.
Active stock picking is particularly crucial for growth investors, who are concerned with buying low and selling high. It does involve quite a bit of work, though, as you need to monitor the market and be prepared to swiftly buy or sell your stocks when the moment calls for it.
Some growth investors like to buy small-cap stocks, which are stocks of companies that have significant growth potential. Such stocks can be volatile, but also give you the chance of making a huge profit if a fledgling company turns into the next Apple or Google.
If you plan to buy-and-hold your selected stocks, then just about any online investment brokerage will do. But if you plan to buy and sell frequently — also known as “trading” — then be sure to pick one with minimal commissions on each transaction. Like these:
Investing method #3: Dividend investing
Dividend investing is a way to generate passive income, and involves buying stocks that pay out regular dividends.
Once the stock has been purchased, the investor gets to sit back and collect the dividends, often paid out on a quarterly basis. Dividends can be re-invested or simply used as income. At the same time, the investor also has the option of making money from capital gains by selling their shares if their prices rise.
On the bright side, dividend investing tends to be lower risk not only due to the low volatility of the stocks themselves but also the fact that investors who hold onto their stocks in the long-term will be able to extract a considerable amount of value through the dividends regardless of the trajectory of the share price.
You can buy REITs or blue chips on any online brokerage, but if you’re buying on SGX, do compare the commission fees for local stocks. Brokers tend to charge different fees depending on whether you’re buying local or overseas stocks.
Robo advisor Syfe also offers a REITs portfolio which might be better if you don’t have much capital to invest.
Also consider incorporating bonds in your passive income portfolio. Government bonds like Singapore Savings Bonds are considered very stable and can pay interest every 6 months until the bond reaches maturity up to 10 years later, or until the investor decides to redeem the bond. The returns are not high though — bonds are considered low-risk, low-return.
Investing method #4: Speculation
If a fun weekend for you involves playing blackjack at Marina Bay Sands or Resorts World, you might be drawn to speculation. Speculation is high-risk, high-reward and involves betting on certain assets in hopes that they will appreciate and earn the speculator quick cash.
Speculators tend to be fond of cryptocurrency, forex trading and options trading. These forms of investments — if you could call them investments — are volatile and unpredictable, so you basically buy them, cross your fingers and hope that luck is on your side.
Speculative traders typically compare crypto exchanges and trading platforms to pick those whose fees aren’t exorbitant, as they would trade frequently. As with active stock trading, they’d also want a platform that can execute trades quickly.
Not to sound like your mum, but unless you can afford to lose money or wipe out your entire trading account, speculation is not a good idea for beginner investors.
Investing method 5: Hands-off investing
If you’re too lazy or busy for even passive investing, there are even more hands-off ways to invest your money than buying the ETF or using a robo advisor.
One of these methods is buying insurance products with an investment component, like Investment-Linked Plans (ILPs). All you have to do is dutifully pay your premiums to the insurance company, and they use your money to buy units in their professionally-managed funds.
Another option is to invest in a unit trust, which is a portfolio of assets that you can buy units in. A professional fund manager will take care of the investments, so you won’t have to lift a finger.
Either way, all you need to do is text your friendly insurance agent or speak to any relationship manager at your bank. You won’t even need to download an app.
The main downside to these hands-off investing methods is the cost. As you are basically putting your investments in the hands of professional fund managers, they will take a cut of your profits, leaving you with unimpressive returns.
Which investing method is right for you?
To decide which investing approach is best for you, you’ll need to first flesh out the following details:
- Your financial goals – What objectives are you hoping to achieve with your investments? Are you aiming for a comfortable retirement or financial independence, or are you gunning for smaller, shorter-term goals such as your children’s education? Do you need a stream of income or a lump sum?
- Investment horizon – When you want to be able to get your hands on the money is just as important as how much you need. A longer investment horizon could be decades from now, such as in the case of a young person planning for retirement. On the other hand, an older person planning for retirement would have a shorter investment horizon.
- Risk appetite – Higher risk can be rewarded with higher returns, but also comes with a higher chance of losing money. Your risk appetite can change over time and can also be tied to your time horizon. When you have a long time horizon, you might have more leeway to ride out fluctuations. However, as you approach the end of your time horizon, your risk tolerance might fall and you might want to move your cash into less risky investments.
- Investing style – Some people are happy to spend hours in front of their screens monitoring the markets, while others might prefer to take a hands-off, buy-and-hold approach to investing.
Out of all of the above factors, your investment horizon and financial goals will be the most important ones in determining which investment methods are right for you. For instance, if you want a passive income of $3,000 by the age of 50, that will have a huge influence on your investment methods.
If you’re a newbie to all this, then we recommend going with Investing method #1: Passive investing.
Signing up with a robo advisor is quick and easy, and most impose no/low minimum amounts. When you’re comfortable with the idea of investing, read up on ETFs and find an online investment brokerage that suits you. Good luck!
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