New Norm 2021: How You Can Cautiously Invest this Ox Year

Yes, some of us were struggling to stay afloat financially last year due to Covid-19’s potent cocktail of layoffs, economic recession, pay cuts, temporary closures and cancelled gigs.

Even if we weren’t that badly hit, spending money on non-essentials such as that $5,000 bag probably took lowest priority. Even plonking large amounts of cash into a lump-sum unit trust took a backseat — who knows if we would need that source of liquidity down the road? I mean, though Covid-19 cases are low in Singapore, we’re not out of the woods yet (and it’s globally far from over, with some countries going into subsequent lockdowns).

Yet, we should aim to invest — albeit cautiously.

You’re probably clued into the benefits of investing — beating inflation, growing money (and making it work harder for you), potential for healthy long-term returns, supplementing your emergency fund and more — so we won’t extol its benefits.

Look at it this way: Even though the economy isn’t what it used to be pre-Covid-19, investing amid what seems to be a volatile market situation is possible if you take measured risks. Overall, it also seems like the market is on the mend and there’s likely to be growth this year.

If you haven’t already begun your investment journey (or you’ve put it on pause), let 2021 be a year when you ride the Ox by the horns and get started. Here are some ways to invest cautiously and the steps you can take to be careful.

 

Determine your risk appetite

As all investments (no matter how safe they purport to be) carry an element of risk, you’ll first need to understand and manage these risks. Knowing how much risk you are willing to accept — AKA your risk appetite — is the first step.

It’s quite simple actually — a risk appetite is like a sliding scale, where a greater risk appetite translates to a tolerance for larger gains and losses (or volatility/swings) and vice versa. This means that if you have a moderate risk appetite, you’re looking to achieve moderate potential returns over a medium to long term under normal market conditions.

Setting boundaries

No matter what your risk appetite is, you need to be realistic. Look at your monies and determine what is the amount available to invest. It should be your savings MINUS your emergency fund and any other money you’re setting aside for a specific use, such as your child’s university education, home renovation loan, retirement fund, etc.

One useful tool to help you see all your monies at a glance is POSB NAV Planner — now made even more powerful with the help of SGFinDex (you can pull details from your accounts with other banks).

From that amount, you need to be of the mindset that if things go wrong, you’re prepared to lose some or even all of it. Remember, all investments have an element of risk. When investing cautiously, it’s unlikely that you’ll lose your capital, but be prepared to see that money “stuck” if the market momentarily dips or while waiting for the economy to recover.

It doesn’t matter if you only have $100/month to invest. We’ll touch on that later.

What’s your character?

If your character is very risk-averse and your heart can’t bear seeing even currency exchange rates go up and down during the peak/off-peak travel season when changing monies to go overseas prior to Covid-19, then you should consider going with the lowest risk level available (even if you’re able to bear the brunt of a higher risk level financially).

However, even if you are able to stomach a maximum level of risk (i.e. you like to go “all in”, with an “all or nothing” attitude towards life and financial matters), do think twice. If you plunge into extreme forms of investing (which we won’t recommend nor introduce here), you might end up losing even more than your initial investment.

Use tools like filters when choosing your investment

When you sign up for an investment account or open a new investment with a bank, you’re typically assessed on your risk appetite. POSB’s Invest portal goes one step further. Using the “Fund Search” function, you can filter the unit trusts by their risk levels, so you know what you’re getting into before you even commit.

 

 

Consider the dollar-cost averaging approach

Dollar-cost averaging, or DCA, might be a term you’ve heard multiple times before, but you simply haven’t had the time to wrap your head around it. Just because it’s an acronym, doesn’t mean it’s complicated.

Here’s an example using groceries. Let’s say you have $100 to spend on groceries each month. Sometimes there’s an offer, and at other times vegetables or seafood are pricier due to the festive season or a monsoon. With your $100 grocery budget, on good months you can buy a lot of items; on not-so-good months you buy less — a balanced way to stretch your dollar overall.

It’s similar with DCA. When unit prices are low, you can buy a lot of units; when prices are higher, you buy fewer. In general, due to the usual growth trends of an investment, in the long run, your money grows too. The units you accumulated at “discounted” prices will all be worth more when prices are higher.

One way to implement DCA is POSB Invest-Saver, where even newbies can invest in Unit Trusts and Exchange Traded Funds. From just $100/month, you can set it up to automatically channel money to investments. This is good for people who are easily stressed as there’s no hassle of timing the market and the automation means no emotions are involved.

Related: #RecessionReady (3/4) — Should You Even Consider Investing When Markets Are Volatile?

While using DCA (also sometimes called a regular savings plan) is one way of spreading your investment risk with time, do still remember that nothing is 100% risk-free.

 

 

Leave the management to the experts

Experienced investors would likely opt for the do-it-yourself route, where they are able to control the exact components of their investments and what percentage it comprises within their entire portfolio.

These folks are usually clued into market happenings, and have access to a wide range of financial tools and financial knowledge. You probably see only the surface, but as they’ve been investing for far longer than you, what you’re not seeing are their wrong financial decisions made, and possibly even money lost.

If you’re new to investing or don’t have time on your hands to keep monitoring the market, it’s better to use a platform where management is done for you by experts (they’re paid to do it!). You’ll still have control over critical factors such as what investment product(s) you’re buying and on what platform — but you don’t need to be actively involved in buying and selling to rebalance your portfolio, or to manually buy units for your DCA investment every month.

You will, however, be able to monitor the progress of your investment and be updated of any actions or key information that might affect you as an investor.

Of course, there’s a management fee payable. But sometimes this can be much lower compared to if you manually buy and sell individual stocks each month (because there are fees involved too each time you buy/sell). I don’t know about you, but to me, I’m paying for peace of mind and more free time.

One such fuss-free investment solution is digiPortfolio available on POSB digibank. It is a hybrid robo-advisor which is powered by technology while leveraging the investment acumen of the DBS Investment team. You can choose from ready-made diversified portfolios which have varied risk levels to fit your risk appetite. And because it has no lock-in period, no upfront fees and a low starting amount, digiPortfolio available on POSB digibank could be an option even if you are just starting out on your investment journey.

 

 

Don’t blindly pick an investment

So you’re all raring to go with your investment choice — you’ve worked out your investment budget, picked out your approach (one-time investment or DCA) and have selected your Unit Trust/ETFs/managed portfolios etc) with the appropriate risk level on a reputable platform that’s managed by experts.

WAIT.

You still need to do your own homework okay? Find out more about the Unit Trust/ETFs/managed portfolios etc you’re picking, what’s the historical performance, what future direction will it have, what are others in the financial world saying about it, are there any possible future insights that could impact it, and are these objectives aligned with your investment goals?

Don’t just select basic parameters, then close your eyes and pick blindly. It’s not jumping onto a bandwagon, the latest fad or playing tikam-tikam (picking at random) — investing involves real money and it’s not 100% risk-free.

Although your research might lead you to “chim” (complicated) information, it’s good to get a gist and know what you’re getting into before you begin. You may not understand the details fully, but you can sorta agak-agak (estimate) if the product is suitable.

Other than internet searches, another way is to leverage expert insights, such as DBS Focus Funds/Funds Insights (for unit trusts etc). For general information, check out POSB’s Invest resources and MoneySmart’s invest articles as well. You can also read the FAQs on the product pages (POSB Invest-Saver and digiPortfolio available on POSB digibank have pretty extensive FAQs), go to DBS’ Investing section or consult a wealth planning manager at the branch.

 

Ride the Ox by the horns this year and kick start your investment journey today. Find out more via POSB’s investment portal and remember to stay cautious and no investment is risk-free.

This is the fifth article in New Norm 2021, a series of 6 articles written in collaboration with POSB to help young families make smarter money decisions in this new Ox year.

Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.
All investments come with risks and you can lose money on your investment. Invest only if you understand and can monitor your investment. Diversify your investments and avoid investing a large portion of your money in a single product issuer.