novice investor Archives | MoneyDigest.sg

Do you know that according to a study of Singaporeans’ financial wellness state by OCBC last year, only 60% of women have investments? Faring better on the flip side, 75% of male respondents aged between 21 and 65 noted that they are investing.

Are you a novice when it comes to investing? If you have a low-risk appetite and not so investment savvy at the moment, fret not. All you need to take is baby steps.

“You don’t need a lot of money to start investing,” highlighted Vasu Menon, executive director of investment strategy at OCBC Bank. “A regular investment plan where you squirrel away small amounts each month into pre-selected investments is one fuss-free way to start building a portfolio.”

Consider these options to start your first investment from $100!

#1: Exchange Traded Funds (ETFs)

The OCBC Blue Chip Investment Plan allows you to invest in ETFs from just $100 a month. Just in case you’re clueless, ETFs are funds that are listed and traded on the stock exchange.

Even if you do not know much, that’s okay. The great thing about ETFs is that you don’t need a lot of market monitoring, thanks to the dollar-cost averaging. By regularly investing a specific sum of money over time, you can potentially lower your average price per counter.

“Diversify over time by phasing your investments into the markets through a regular investment plan, so that if the markets see a drawdown or sharp volatility, you will have dry powder to buy at lower levels, which reduces your average cost. A regular investment plan allows you to benefit from dollar-cost averaging,” Menon shares.

#2: Unit Trusts

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For folks who want to know that their money is in good hands, unit trusts would be a good investment strategy. To put it simply, an experienced fund manager oversees a pool of funds from a group of investors and uses it to invest in a range of financial assets.

The good news is that you don’t need significant capital to access a diversified portfolio. You can choose between making consistent investments from $100/month or opt for the minimum $1000/month lump sum route.

Purchase methods include cash, Central Provident Fund (CPF) Investment Scheme, and the Supplementary Retirement Scheme (SRS) for selected funds.

“For myself, I started my investment journey by investing my own CPF monies since the funds were just sitting idle in my account, out of sight and out of mind. I took the first step by setting up a CPF investment account and began exploring opportunities to invest,” said Tan Siew Lee, Singapore’s head of wealth management at OCBC Bank.

#3: Robo-Investing

As we come to a close, robo-investing is our last option. Through this investment strategy, novice investors who want to invest actively via algorithms will be able to construct, monitor, and review portfolios.

Menon shares that OCBC RoboInvest could be one way to begin. Selected portfolios just require a small initial investment of US$100, making a fantastic way for almost anyone to kickstart their investment journey.

While we can’t say the same for other robo-investing platforms, Menon assures us that OCBC RoboInvest automates investments with guidance and validation from wealth experts to give you peace of mind.

However, that doesn’t mean a hands-off kind of financial venture. While your portfolio is monitored and periodically re-balanced based on economic and market movements, you hold the final say to approve any changes made to your portfolio.

Want to find out more on OCBC RoboInvest? Click through this link: ocbc.com/personal-banking/investments/roboinvest.

WHY IS RISK TOLERANCE A FACTOR TO INVESTMENT?

Determining your preferences is the initial step to investing. Under it is risk tolerance. Risk tolerance is basically how much you are willing to gamble in any event. It can impact how you shape your portfolio. You see, the pressing need to acquire the money can make you shift towards conservative investments.

If you are worried that you are missing out on a higher earning potential, then your investments may be too conservative. On the other hand, constantly fearing the condition of your investments can mean that you are carrying too much risks. This is why you must quantify your risk tolerance by taking quizzes.

As I entered the investment scene under a renowned international institution, I was given a risk tolerance questionnaire with 16 questions. It helped me to identify the appropriate asset classes that suited my mindset.

CAN YOU RISK IT ALL BY PICKING YOUR OWN STOCKS?

I have to admit that becoming the mastermind of your portfolio sounds attractive. However, picking your own stocks can potentially become a disaster for newbie investors. Studies have shown that choosing your own stocks is almost always a losing proposition even for the professional traders. The risk versus the rewards of owning stocks are simply not in your favor.

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Why is this so? For starters, you are more likely to incur trading fees when you trade more stocks. This will eat any money you would make. Accept that you do not own a crystal ball. You cannot perfectly select the stellar companies over the dull ones. So, seek professional help whenever possible.

WHAT IS A BOND?

Whenever I give a talk about financial indepence, I always get asked about the different asset classes. Bonds is among the common ones. 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.

For instance, an airline might take up a bond loan from the government if wants to purchase a variety of new planes. This type of loan involves a specific period and fixed investment rate. Said rate is determined by a number of factors such as the economy’s climate.

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. Institutions that offer bonds include Singapore Government Securities and ABF Singapore Bond Fund.

WHY IS IT CRUCIAL TO BE DIVERSIFIED?

By definition, diversification is the process of allocating capital in a way that reduces the exposure to any one particular asset or risk. Say that you invested all your money on one company. Your money will go down the drain when it goes bankrupt. Owning 2,000 shares from various companies can cushion the bankruptcy of two or more companies. It is essentially better to invest small pieces of wealth in multiple companies rather than investing it all in one.

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Simply put, diversification means that you will not put all your eggs in one investment basket. Being diversified applies to all the industries or asset classes that you will invest in. Try to invest a mix of stocks and bonds or a mix of industrial sectors. The broader your portfolio is, the more likely you are to weather a market storm.

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