How to start Investing in Singapore?

A Thorough Comparison & Analysis

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Investing is one of the most important components of personal finance. Knowing how to invest and acting upon this knowledge can help a person greatly in growing their wealth quickly and to generate sources of passive income.

Successful investors are able to retire earlier and chase their dreams without having to worry about whether they would have enough savings to last them for their lifetime. They can live life, knowing that their investments can take care of their financial needs.

To help you get started on your investing journey, this article will be a simple guide meant for beginner investors who are unsure of how they can get started.

KnowYourRisk: The first step to savvy Investing

How adventurous are you when it comes to trying new things? 

Different investment products have different risks involved — find out which one would suit you best.

Credits: Temasek

5 things you need to do before investing

You might know the key investment products and the way they work, but how do you start investing in Singapore?

This video will help you take the first step.

Credits: Temasek

Table of Contents

Who can invest?

All you have to do is set up a Central Depository (CDP) account before you can even begin investing in Singapore. You need to be over 18 years of age and not bankrupt. The CDP account is where all stocks that you purchase on the stock market in Singapore are held.

You’ll need 2 accounts before you can invest in Singapore:

  • SGX CDP account
  • Brokerage account

If you are a completely new investor, you can go straight to a local brokerage firm directly to apply for both accounts together. Depending on your broker, the turnaround time will take less than 7 working days.

If you’ve invested in the stock market, you’re likely to have both accounts already. All you need is to understand your investment and invest it through your online brokerage platform or call your broker.

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You might have stumbled on some online financial websites and feeling motivated to invest. ALWAYS do your own due diligence, no matter how promising a certain investment may sound.

But if you’re prepared to do that, you’re also willing to invest and yield greater than (and even more) the inflation rate!

Why should we invest?

  • Thus, you can either put it in your savings account and lose in value over time.
  • Or you can start with something easy and develop the right mindset – passive and long investment horizon.

It’s not about quitting your work or early retirement, but having the choice to do so. It is about becoming financially self-sustainable without depending on the work. Such an option allows you to live your own life, and isn’t that what most individuals dream about?

Money is more valuable today than tomorrow. Economists call this “Time value of Money”. Your surplus cash must be located in your wallet or bank accounts somewhere. But the major issue is that both don’t offer the yields that can affect your wealth. By making use of compounding interest effect, your financial capital accumulates and rises over time. That’s why it’s so important to put your money to work. In the below illustration, you will see why starting investment early is an advantage.

One-Stop Financial Compound Interest 1

Your money’s value drops over time, you purchase less than you can. Whenever you work, eat and sleep, it’s like falling coins. In Singapore, the average level of inflation is 1.7% and the average rate of savings is less than 0.5%. That means you’re losing 1.7% every year! By the time you’re 60, you will have lost over 60% of your wealth if you don’t invest. That’s a pretty good reason to invest if you ask us.

Based on #2 and #3, you can experience either of the two:
Positive Exponential Growth: If you are above the inflation rate, over the years your money will grow and snowball into a much larger sum.
Negative Exponential Growth: If you are in the negative range, over years you will sink deeper into debt.

One of the primary reasons why our learners approach us is to invest for retirement. Many are concerned that their savings (including CPF) can not give them the lives they want when they retire.

The truth about investment returns & getting rich through investing

One of the common statement that we hear:

Are there any investing strategy which can beat the market, achieve monthly passive income, a low outlay of capital, and best little to no risk?

So first off, here’s the truth:

Investing will not make you rich or replace your salary unless you have a sizeable capital to compound with.

In fact, you may be better off starting with small capital during the learning phrase as making mistakes is part of the investing journey; you want to make mistakes when your capital is small, not when your capital is huge. 

Starting early allows you to gain the opportunity to learn the necessary knowledge, understanding and mindset about investing. So that when your capital starts to turn sizeable you have the skills to invest it.

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Low-risk & high-risk investments

All investments involve some degree of risk. Some investments are capital guaranteed while some are not.

If you intend to purchase securities – such as stocks, bonds, or mutual funds (unit trust) – it’s important that you understand before you invest that you could lose some or all of your money

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Do take note that: All investments are subject to risk. Risk refers to the possibility of losing part/all of your investments due to financial market changes

The reward for taking on risk is the potential for a greater investment return. If you have a financial goal with a long time horizon, you are likely to make more money by carefully investing in asset categories with greater risk, like stocks or bonds, rather than restricting your investments to assets with less risk, like cash equivalents.

On the other hand, investing solely in cash investments may be appropriate for short-term financial goals. The principal concern for individuals investing in cash equivalents is inflation risk, which is the risk that inflation will outpace and erode returns over time.

What are the investment options?

The first question that people tend to ask when it comes to investing is what exactly they can invest in. This is actually a pretty simple question. Unlike the past, retail investors in Singapore these days have a lot more options available to them.

There are countless of investment options you can invest in some are common like Stocks, Unit Trusts, REITs and ETFs whereas some are less familiar like Bonds. What you ultimately choose to invest in has to be in an instrument that you understand, and are comfortable with the risk.

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Stocks are the most popular tool that we use when talking about investing. Company may offer its shares to investors to raise money such as to grow its business, acquire new assets or to remain solvent.

A company’s shares are listed on a stock exchange and share price may rise or fall. However, not all shares react in the same way to the same set of economic, market or business conditions.

Shareholders bear more risk than bondholders and other creditors if the company fails and is wound up. In the worst-case scenario, a shareholder may lose up to the initial amount invested. But of course, if it goes well, your initial capital can also grow to a lot more.

Real Estate Investment Trusts (REITs) are becoming more common as an investment class due to the increasing investment-savvy population along with Singaporeans’ overall love for investment in property.

The properties are then rented out in exchange for rent to tenants. Investors investing in REITs are REITs’ co-owners. They have the right to earn rental revenue from the consistently distributed estate assets.

Investors will also profit from the capital gain as the valuation of the estate increases. While REITs may not be a popular word for many non-investors, Singaporeans are no stranger to properties owned or managed by these REITs.

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Unit Trust Fund is also known as UTs. If you invest in a unit trust or fund, your money is pooled with money from other investors and invested in a portfolio of assets according to the fund’s stated investment objective and investment approach. A unit trust is a fund which adopts a trust structure; not all funds use a trust structure.

In Singapore, local and foreign funds offered to retail investors are regulated as collective investment schemes. A Unit Trust fund manager actively managed the fund usually aims to outperform a particular performance benchmark. They are paid a management fee from the fund, typically based on a percentage of the assets they manage.

Exchange-Traded Funds is also known as ETFs. If investing in individual stocks is not your category, investing in ETFs can be an alternative.

Unlike a Unit Trusts fund, an ETFs is a passively managed investment fund that aims to produce a return that tracks or replicates a specific index such as a stock index or commodity index.

Such index-tracking ETFs are passively managed by ETFs managers. ETFs do not try to outperform the underlying index. Index tracking ETFs have fees and charges that are usually lower than those of actively managed investment funds.

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Bonds are a debt security investment that is low-risk, stable and predictable. It is a form of borrowing. Governments and companies issue bonds to raise funds (borrow money). When you invest in bonds, you are lending money to the issuer for a fixed period of time.

Even within bond investments, there are various types and investors can embark on in Singapore. Importantly, you need to understand that risk and returns always go hand-in-hand. A bond that pays out more in coupons or returns will tend to be a riskier investment than one that pays out less.

However, you may lose all of your investment if the issuer defaults on its bond or winds up or is liquidated.

Forex trading is simply the buying and selling of currencies such as EUR/USD, GBP/USD or USD/SGD. Investors watch the exchange rate changes between different currency pairs and jump in when they believe there’s a possibility of buying low and selling high.

Forex trading may seem attractive at first glance, but do understand that it is vastly different from traditional stock investing. It comes with greater leverage and counterparty risk but at the same time, it has lower transaction cost and could earn you a positive carry trade.

Forex market stays open around the clock. There is no close of the trading day, nor do you have to worry about the trading hours of various time zones. This means that you can literally trade currency any time of the day and lose money in your sleep.

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Cryptocurrency is referred to as a digital currency or virtual currency. It is a type of payment that can be used to exchange products and services online, but it is still not commonly accepted.

Cryptocurrencies function with blockchain technology. This blockchain is a decentralized technology that manages transactions and records them for viewing the entire crypto network. This makes cryptocurrencies attractive as it does not have a centralized scheme.

If you want to invest in this non-traditional option, keep the amount small and be aware of the associated risks. It may be useful one day because of its value.

CPF Investment Scheme (CPFIS) provides CPF members with the option to invest their CPF savings in various instruments such as insurance products, unit trusts, fixed deposits, bonds and shares while meeting the long-term objective of financial security in old age.

Members of CPF are given the option to create a CPF Investment Scheme (CPFIS). This allows them to use their CPF balances to invest in a number of financial instruments. 

Any returns you get will go back to your CPF account. That means you should ideally be investing with the future in mind.

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Supplementary Retirement Scheme is also known as SRS, is part of the government’s multi-pronged strategy to encourage individuals to save for retirement, over and above their CPF savings. While CPF contributions are compulsory, contributions to SRS accounts are voluntary.

Contributions to SRS are eligible for tax relief and Investment returns are tax-free before withdrawal and only 50% of the withdrawals from SRS are taxable at retirement. Contributions to the SRS account can be used for investing. SRS funds can subsequently be withdrawn at our statutory retirement age of 62 to provide an additional source of income. 

Similar to the CPF Investment Scheme, any returns you get will go back to your SRS account. That means you should ideally be investing with the future in mind.

Some of the considerations analysis as below should be considered before you decide to invest

By understanding the risks associated with the various investment options, you can better decide on investments that best match your risk tolerance and personal circumstances.

Consider how comfortable you are with the risk and can afford to take it. Can you manage short-term temporary losses in your investments? Do you have sufficient money to take up investment risks? You can take the Risk Tolerance Questionnaire to better assess your risk tolerance.

Consider the length of your investment. Remember, for your retirement, your CPF savings are intended. They are therefore usually for long-term purposes unless, for other reasons, you are close to retirement or have a short-term investment horizon.

Consider your financial commitments and the amount of cash needed to support your retirement lifestyle. Do you have other retirement assets apart from your CPF savings?

Getting started on your investment journey may appear challenging or even intimidating. However, with the right tools in hand, and a clear idea of your investment philosophy, investors can make their journey much easier.

Give your assets the chance to grow. With our expertise we will help you to formulate and implement an investment strategy

One-Stop Financial is your experienced expert for asset management and investment advice. Together with our highly qualified partners, we can also offer you a comprehensive range of wealth planning services
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