Are you disappointed with the interest earnings you are getting
from your savings account?
If you have some spare cash and are thinking about starting your
investment journey, we at GET.comwill walk you
through the 5 main things you should consider before taking the
plunge.
1. Do You Have The Right Mindset?
Many of us have been taught from a young age to save money, so we
religiously save a portion of our income each month for rainy
days.
However, with the low interest offered on savings accounts in
Singapore, it's hard for us to hold on to the value of our money,
given that the returns are typically lower than the inflation
rate.
Starting an investment journey requires an understanding of the
risks involved in investments. If you want better returns, it has
to come with a higher risk.
If you think that “losing” money will make a big emotional impact
on you, then investing may not be for you.
2. Risk Tolerance
One of the first things you need to understand about yourself is
your risk appetite. This will impact the type of investment vehicle
you choose.
Lower risk profiles would typically choose fixed income instruments
or bonds which are usually principal-guaranteed.
They work in similar ways to a fixed deposit, in the sense that
selling your investments before the maturity date will impact the
returns you earn.
This amount should be money that you will not need for a while so
that there will not be any need for sudden withdrawal.
If you are one of those who are willing to take a bit of risk, you
will have more instruments to choose from.
Again, you need to decide what threshold you can tolerate so that
you do not sell your investments once you see some losses taking
shape.
You might also want to think about managing your wealth in a
portfolio perspective – allocating a different percentage of your
wealth in various asset classes with different risk.
This can ensure that you do not put all your eggs in one basket and
lose everything if one instrument does badly.
3. Trading Is Not Investing
Related to point 2, investing builds on a long term horizon of at
least 5 years. This means you will need to be able to let the
prices of your chosen investment asset move up and down without any
panic to cut losses or take profit.
Studies have shown that the longer you hold onto your investments,
the lower the likelihood of losing money.
Those who are looking to making a quick windfall are considered
speculators rather than investors, and they usually have a bigger
risk appetite.
4. Types Of Investment Instruments
After determining your risk appetite, you can then have a better
idea of what investment instrument is suitable for you.
This is a general guide:
Low risk profiles – cash investments such as deposit accounts
Medium-low risk profiles - government bonds, corporate bonds, funds
with principal-guaranteed returns
Medium-high risk profiles – stocks, exchange-traded funds,
property
Here you can find out how
much money you need in order to start investing.
5. Tracking And Review
There's no point in investing if you don't track and review your
investment annually. The market cycle changes and different
environments can impact your investments.
It's wise to have an annual review to check whether your
investments are fulfiling your investment objectives, and check if
you need to switch to other instruments that have better potential
returns.
Remember to take into consideration the costs of your investment as
well, such as any management fees you'll need to pay to fund
managers or trading costs.
Costs can eat into your investment returns so it is important to
take them into consideration.
Lastly, remember that it is more important to allocate your assets
proportionately to your needs rather than spend too much time
picking the “right” investment instruments.
A well-balanced portfolio will be able to tolerate market
volatility for any one of your instruments, so that you will still
achieve protection for your assets.
This article was originally on the GET.com
blog at: 5
Things Newbie Singaporean Investors Should Know.