Recently, a good friend of mine declared that he wanted to start investing. As a lawyer earning a five figure annual sum, he’s amassed a pretty decent nest egg, but hasn’t invested a single cent all these years.
This is a lot more serious than it sounds. Over the last five years, Singapore’s inflation rate has been about 4%, which means that in 25 years things could be twice as expensive… and your money worth half as much. My cautious friend has, over the last 5 years of his working life, actually lost quite a bit of value on his savings.
If you’re wondering why a well-educated, well-paid professional like my friend hasn’t bothered to invest, well, here are his excuses—and they’re excuses that are going to sound familiar to many Singaporeans.
He doesn’t know everything there is to know about investing
My friend took two weeks of leave at the end of last year, and in true lawyer-style, he told himself he’d find out “all about” investing during the break. He borrowed books on real estate investing, stock investing and everything short of rocket science.
As expected, he’s now back at work, and far from being the investing wizard he envisioned himself becoming, he still feels as unprepared as ever.
The truth is, you don’t have to know everything about investing to stop your money from depreciating in value. You just need a brief overview of the different types of investment options open to you, and to pick a straightforward way to use them.
MoneySmart’s investment guides are a great place to start, if we do say so ourselves. Read all the articles on the page and you’ll have a better idea of where you want to start. If you’re not retired yet and are not putting all your money into property, you probably want to look towards building a stock portfolio.
Don’t wait until you know enough about investing to write a Bible-thick book about it. By then it’ll be too late.
He’s afraid of losing money
“I’m trying to find a low risk, high return way to invest my money,” says my friend. That’s a pretty Singaporean attitude—wanting great results for minimal effort.
As a general rule, the higher the potential returns, the riskier an investment is, and vice versa. If you want to become a speculator (nice word for gambler), you might decide to buy and sell emerging market stocks or penny stocks over short periods of time. Sure, you might lose big, but if you get lucky you could also earn a lot.
On the other end of the spectrum, keeping your money in a fixed deposit means you have almost no chances of losing it, unless the bank goes bust. But you also earn at pathetic interest rates.
Most people are happy to settle for a low to medium-risk strategy which earns them a decent return that enables them to hedge against inflation.
Other than your first home, you’re probably looking at a mixture of stocks—blue-chip, dividend-yielding stocks if you’re particularly risk averse. Monitor prices, buy when they’re relatively low and then hold them for the long term, making your gains through compounding interest.
If it makes you feel any less reluctant to start, you’ll lose more money letting your cash waste away in a savings account.
He thinks he has no money to invest
My friend has a healthy five figure stash of savings, yet he doesn’t feel ready to start investing yet.
While he might not be ready to jump into the property market yet, it’s most definitely not too early to start looking at other investment vehicles. You can totally build up a decent portfolio featuring stocks and perhaps other types of investments like bonds or investment-linked life insurance.
Before, stock investors on SGX had to buy lots of at least 1,000 stocks. But since 2014, the minimum lot size has been reduced to only 100 units. That means you can buy a lot of most shares for less than $2,000. If you’re thinking of getting into investing now, you’ve got excellent timing.
Ideally, you should look to get into investing the moment you enter the working world and build up your emergency fund.
For my friend, who’s been in the workforce for over five years, this is long overdue.
Have you started investing yet? Tell us why or why not in the comments!
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