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Newbie’s Guide To Investing In Singapore

Contrary to popular belief, investing is not only for the rich and famous. Anyone can get started with an investing program. There are various ways to invest small amounts of money and to grow one’s portfolio over time. In fact, this differentiates investing from gambling. Investing takes time and effort!

#1: SET THINGS STRAIGHT

This week, I invited an insurance agent to enlighten my team about the products available in the market. She highlighted how important it is to map out one’s financial future. What are your goals? Will you keep the money for 3 years and withdraw all the earnings? Or, is the money coming from a disposable income that you can risk losing? You need to set a clear path to reach your target.

#2: FIGURE OUT HOW MUCH MONEY YOU NEED

Once you have your financial goals lined up, it is time to determine how much money you need to invest. Use online calculators such as the Central Provident Fund’s savings calculator to work out a monthly investment plan. What are the helpful strategies that you can employ to save money each month? Well, developing a budget is a good place to start.

If you do not seem to have enough money at the end of the day then, figure out what needs to be changed. Eliminate unnecessary expenses or expand your income streams. A combination of these two can help you adjust.

#3: KNOW HOW MUCH RISK YOU CAN TAKE

The next step is to identify your investment risk level. Are you willing to shell it all out just to gain high profits? Or, do you need to be as conservative as possible?

There are hundreds of investment programs that you can partake in. From bonds to equities as well as gold bars to expensive artworks, you need to narrow down your options. So, know your preferences.

Stocks gives you a hiigher return in the long run. However, it can be highly volatile in short-term basis. On the other hand, bonds are designed to create a steady stream of income. The most conservative option is the mutual funds. Think about these information.

Image Credits: pixabay.com

When things fall into place, you may open a brokerage account. Investing directly in shares and bonds or indirectly through the exchange-traded funds (ETFs) can be less costly. A mixture of investment types can help balance the potential gain and the risk.

Sources: 1 & 2

What On Earth Are Investment Bonds?

DEFINITION

A bond is a fixed income investment in which an issuer or investor loans money to an entity. Entities such as companies or governments borrow the funds for a definite period of time, involving an interest rate. These bonds are used by said entities to raise money or finance a variety of projects.

PREPARATION

If you are comfortable with getting less money in return, then you will benefit from investing on bonds. You may think that bonds are less risky than others. However, this statement is not entirely true. Bonds are usually less risky than stocks when you are comparing products from the same issuing company.

Most investment bonds are whole of life. Thus, there is no minimum term. At surrender or during the occurence of death, a lump sum of money will be paid out. The amount of money depends on the bond’s terms and conditions as well as the investment’s performance.

ACQUISITION

a. Bond ETF

The ABF Singapore Bond Fund is listed on the Singapore Exchange and managed by Nikko Asset Management. Investors can easily sell or buy holdings in the bond fund for as low as S$100. This fund buys the bond issuance of quasi-government entities such as Temasek, LTA, and HDB. What’s the main catch? There is no maturity period for this. The fund will use the proceeds to buy other bonds. You will receive your principal by selling your holdings in the open market.

b. Singapore Government Securities (SGS)

The Singapore Government issues bonds under SGS. It offers treasury-bills, SGS Bonds, and Singapore Savings Bonds. These are typically risk-free and are applied through the three local banks.

c. Investment Grade Bonds

Whether you believe it or not, bonds come with bond credit ratings. These ratings measure credit worthiness. An investment grade bond (i.e., AAA, AA+, or AA) means that the bond issuer is unlikely to default.

Image Credits: pixabay.com

These are just some things that you must consider before investing on bonds. Best of luck on your financial journey!

Sources: 1, 2, & 3

Top 5 Investments Business Owners Should Make

When you run a business, whether it’s a small start-up or a large corporation, you need to be confident in where you invest all company profits. Pumping a lot of the money back into the business is the place to start in order to help it grow and remain profitable. Yet there are many other areas in which you can invest as a business owner that will provide dividends to gain further profits for strengthening the firm. Here are five of the best investments for business owners to make.

Penny Stocks

Especially for start-ups, new and small businesses, penny stocks are a great place to start for any business owner making their first investments. These are companies that trade with exceptionally low share prices (usually £3 or less), which means a lot of shares can be invested in with a low amount of capital. They are a highly volatile investment but do make a great starting place for learning the basics of investing.

Forex

If you want to find a reputable way of making some extra money for your business by investing profits, then forex trading with Fx Pro is a good option. There are a number of safe currencies to invest in during times of uncertainty, or more risky choices if you’re feeling brave. For beginners or experts, it offers a good way to boost profits across international currency markets.

Equity

Buying an ownership stake or equity investment in another company can provide additional capital for your firm. Obviously, it is highly inadvisable to invest in any competitors. Finding a successful company or one that is on the rise to take an ownership stake can result in good percentage profits for your business, as long as it doesn’t perform poorly or go bankrupt.

Property

Real estate is a great way to enter an entirely new market and with house and rent prices still rising, it can be incredibly lucrative. It may be better to invest in commercial property, related more to your business though, such as buying your office rather than renting if you have the profits. This provides a useful asset and one that will hopefully grow in value.

Bonds and Mutual Funds

For long term, safe investments bonds and mutual funds are the go-to option. Government bonds are some of the safest investment options out there, while mutual funds can be found that have low risk attached to them. They provide a good place to learn about market trends without the risk of losing big in one go.

Consider these five investments if you’re a business owner looking to put your profits in a worthwhile place.

Investment Basics: Bonds Versus Equities

BONDS

Just like some people, organizations and governments need to borrow money in order to function. An organization may need funds to expand into new markets while the government may need money to improve the infrastructures. However, some organizations need more money than the bank can provide. This is why they have to issue bonds to the public market. After which, a number of investors can lend a portion of the capital needed. So in a sense, bonds are borrowed money with a fixed and stable rate of return.

EQUITIES

For an aggressive investor that embraces risks, consider purchasing equities. Equities are the shares sold by companies. Buying equities means you become a shareholder – an owner of a percentage of the company. But if the company gets bankrupt, an equity investor will get the last claim on its assets.

PROS

BONDS

Including bonds to your portfolio provides you periodic interest revenue for a certain length of time. Since its interest rate typically does not change, you will know what to expect.
In an unfortunate event that the company goes bankrupt, bondholders are the ones who get paid first because they are creditors with the first claim on the company’s assets.
There are various types of bonds to choose from such as government bonds, zero-coupon bonds, and corporate bonds.

EQUITIES

Since equity investors become owners of a percentage of the company, they are equipped with the highest possible returns.
You can profit it different ways such as gaining from the increase in share prices or dividend income (if the company declares dividends).
Depending on how huge your shares are, you may have power to vote in the company’s decisions and issues.

CONS

BONDS

Since the market changes and the bond’s interest rate relatively remains the same, it can lead you to getting lower investment returns.
If you are keen to sell a bond with an interest rate that is lower than the current market rate, you will have to sell it at a reduced or discounted amount that what you originally paid for.

EQUITIES

Equities are volatile and riskier than bonds. As much as equities can give you the highest returns, they can also give you greater losses.
Unlike bonds, there is no guarantee of dividend payment in equities. Based on the current market and business circumstances, the company can choose whether it pays the dividends or not.

Image Credits: pixabay.com (CC0 Public Domain)

Sources: 1, 2, & 3

What should you invest in? Equities or Bonds?

What should you invest in? Equities or Bonds?

The answer depends on two major factors: how young/ old you currently are, and the riskiness of your job. To elaborate, it is good to understand some basic concepts:

There are basically two types of investment products, bonds and equities.

Company issue bonds, which is borrowings with a fixed rate of return (interest rate). Bond holders do not own the company, so do not get to vote in company decisions.
Company sell shares, which is equity to shareholders. Shareholders own parts of the company, so they get to vote in company decisions, as such, shareholders also undertake the risk the company takes.

Basically, it shows the simplified balance sheet of companies.

The revenue that company earns goes back to pay business expenses (eg. employee salaries, tax, etc), before paying for the interest owed to bondholders, leaving what is left as the profit.

The company can then choose to distribute part of the profit as dividends.

So in the 3 scenarios, they look like:

Normal economy – Revenue minus business expenses minus interests for bonds equals profit.
Boom – Revenue increases by quite a bit, minus business expenses which is more or less fixed, might increase a little bit, minus interests payable to bondholders which is the same, and leaves quite a lot of profit. Shareholders then get to share in the profit.
Recession – Revenue dropped by a lot, minus business expenses which is roughly the same, maybe drop a bit only because you can retrench some staff, but can’t retrench everyone, minus interests payable to bondholders which is the same, leaves very little as profit.

In the event the company goes bankrupt, it will have to pay the bondholders first, because in bonds, they owe money to bondholders. After that, any money left then goes on to paying the shareholders.

In the case of stocks and shares, share cycles typically lasts 8 to 10 years.

Total earning potential is the sum of your earnings from today until the day you retire. Given the above, which total earning potential scenario is higher?

When you first started work fresh out of university or
After working for some years and possibly earning at your peak?

The answer is obviously the former, where you first started your first job in your twenties. Why is this so?

Imagine that you retire tomorrow, your total earning potential will then be your salary today + your salary tomorrow.

This means when you first started work, you have a long earning timeframe until you potentially retire. While counterintuitively, when you are possibly earning at your peak after several years of working experience, you may not have a high total earning potential.

Diversification is then spreading your investments over a number of assets to reduce risk.

What this means is:

Age wise

When you are young – you behave like a bond (because if you get fired when you are young, it is easier to find a new job because your salary is still low, and got more time to accumulate wealth)
- So when you are young (bonds) – you should buy equities
When you are old – you behave like a share (because more risky, less time to accumulate wealth and see through the stock market cycle)
- So when you are old (equities) – you should buy bonds

Occupation wise

When you are in a low risk job (eg. government sector, teacher although I know thatnowadays the “iron rice bowl” is not as low risk as it usedto be) – you behave like a bond (less chance to get fired)
- So when you are in a low risk job (bonds) – you should buy equities
When you are in a high risk job (eg. private sector, banking) – you behave like an equity (more chance to get fired, but got potential to earn a lot in good times)
- So when you are in a high risk job (equity) – you should buy bonds

Image Credits: pixabay.com (License: CC0 Public Domain)

So there you have it. Depending on where you are in your career life cycle, and whether your career behaves like equity or bond, invest accordingly to achieve the desired diversification effect.

“Work hard, save up to invest, retire young.”

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