How To Start Investing In Singapore: A Beginner's Guide (2022)

Investing is an essential skill to have, allowing you to manage your finances better and achieve life goals quicker. Here’s all you need to know before you take the plunge.

Since late 2021, the trend is telling - more Singaporeans are putting more money into their investments in Singapore in view of looming recession and inflation fears.

Despite the uncertainty from the down markets, it’s also likely you’ll find your peers trading on robo advisors and online brokerages promoting free shares and zero commission trading. That said, is investing in Singapore really as easy as it sounds? How do you know if your investments are truly good bets to hold on to?

The first steps are indeed the hardest to take, so here’s a full guide containing everything you need to get started.

What’s the difference between saving and investing?
How much do I need, then?
What is an ideal rate of return?
What are the risks of investing?
Things to consider before investing
Investing tips for beginners in the stock market
Low-risk investment tools for beginners to invest in
How to start investing in Singapore?
Conclusion

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What’s the difference between saving and investing?

Savings are monies that you set aside for emergencies. These need to be liquid – that is, you must be able to get the cash from savings on short notice. An example would be some extra cash stored in a current account that you could grab whenever you want.

Investments serve a totally different purpose. Investments help you hedge against inflation (i.e. growing your money to match the rising cost of living) and increase your wealth to last throughout retirement.

This means investments are not meant to be fiddled with, except for tasks like portfolio rebalancing. If you get into an emergency, one of the worst things that can happen is having to cash out your investments.

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How much do I need, then?

Fortunately, you can start investing right after you’ve built up an emergency fund. Having at least six months’ worth of income saved up helps prepare you for any unexpected personal crises and allows you to invest in riskier assets.

Furthermore, when all your money is tied up in investments during unexpected times, you may have to withdraw funds when the markets aren’t performing well or when your assets haven’t reached maturity – exposing you to hefty penalty fees.

From there, you can either invest regularly or save up a lump sum before putting your money down. The former method is called Dollar Cost Averaging and there are investments that allow for a monthly deposit starting from just S$50. As for the latter, it’s dubbed Lump Sum Investing. This strategy requires a much larger deposit, mostly due to the asset’s price.

Neither strategy is superior but the latter is necessary if you want to invest in certain ways. For example, being a landlord or trading derivatives.

What is an ideal rate of return?

Singapore’s inflation rate is currently hovering around 3% to 4% each year. If your investments produce returns below that, you are still effectively losing money. Therefore, your annual rate of return should be 5% at least. In the long run, this helps you to hit crucial financial milestones and prepare for retirement.

You might be able to rely on savings alone to retire, but you’d need a lot of money to be able to do that. You need to stash aside enough money that, even with inflation, things like rising medical costs and diminishing income can be overcome. It’s not impossible if your income is S$15,000 a month or more but it’s hardly an easy or comfortable way to live.

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What are the risks of investing?

As you start to build your own investment portfolio, you will soon learn that you need to make a choice between diversification and concentration. Do you concentrate all your eggs into a few baskets, or do you diversify your risk and keep your eggs in many baskets?

Keeping your investments concentrated in a few assets can help you maximise return on your portfolio. But what happens if one of the investments turns out to be a dud? It can have a huge negative impact on your investment portfolio. That’s why diversification is key.

The advantage of diversification is that it reduces the volatility of your portfolio and the potential risk. Even if a few assets are doing poorly, it will be compensated by the superior performance of the remaining assets. However, diversification is not without its risk too. Over-diversification can water down the gains on your investment portfolio.

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Things to consider before investing

#1 Debts

Whether you’ve got an education loan or a personal loan to pay off, high-interest debts should be paid off first before you invest. Of course, debts like house mortgages will take extremely long to pay off, so that can be an exception.

But the rule of thumb is to pay off your debts first unless you’re confident that your investments will be able to reap higher gains and offset the interest rate for your debt. But as someone who’s just starting out, you won’t be able to estimate your gains accurately. After your debts are paid, you can use the extra money to start investing.

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#2 Emergency funds

Before you start investing, you should have a solid emergency fund as a safety net for any unforeseen circumstances.

Life is filled with uncertainty and you’ll never know what might happen that would require a large sum of money. You won’t want to invest all of your savings, only to have to deal with cash flow issues when you really need the money, don’t you?

Depending on the investments you choose, some investment vehicles like endowment plans or fixed deposits will impose a penalty if you withdraw the money before maturity. This might also cause you to lose out on the interest gained.

Consider storing your emergency funds in a high-interest savings account to let your money work harder.

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#3 Insurance coverage

Yes, you want to start investing as soon as possible to grow your wealth. But health is wealth too. Being sufficiently insured is crucial so you know that your healthcare expenses will mostly be accounted for if you unexpectedly fall sick or have been diagnosed with a critical illness that could wipe out all your savings.

This is why it is crucial to ensure that your insurance portfolio is sorted out first before you use any disposable income to invest. Once you know that you are adequately covered, you’ll have the peace of mind knowing that any unfortunate illnesses that you might face won’t require you to tap into your investment pool and lose out on the power of compounding.

Investing tips for beginners in the stock market

#1 Research, research, research

The most important thing before you start investing is to do your research. Though this has probably been emphasised in countless articles, it’s extremely important.

It can be very tempting to just purchase a stock that your friend claimed to be “good” with high returns, but do you know how to tell if the company’s business is sustainable? Are their returns a bit too good to be true? What’s the company’s leadership like? These key areas are crucial in determining if the company you’re investing in is sustainable for the long run. When you’re analysing a company, look out for performance indicators like their earnings per share (EPS) or price-earnings ratio (P/E ratio).

Simply listening to hearsay might have you parking your money into the wrong stock, and it’ll be too late when you burn your fingers. And you can’t blame anyone except yourself for it. Always remember — past performance is not indicative of future performance.

#2 Create a diversified portfolio

Imagine only holding onto tech stocks. Once there’s a dip in the tech stock market, your portfolio is going to be impacted significantly because you don’t have other stocks to balance it out. This is why diversifying your portfolio is very important as it reduces the risk of any one stick hurting the overall performance too much.

The easiest way to diversify your portfolio is to buy an index fund, like S&P 500. You own hundreds of companies across many industries, making sure that when one industry tanks, the others can cushion your losses. Getting an ETF or a mutual fund won’t require you to analyse the companies held in the funds too, reducing the amount of research you need to do.

#3 Be prepared for the market to dip

Especially for new investors, any slight dip or fluctuation in the market might send you panicking and withdrawing all your money. But this is not the right mentality as the stock market fluctuates, and you will definitely incur losses from time to time. The worst scenario is when you buy high and sell low out of panic.

As long as your portfolio is adequately diversified, any stocks that dip won’t affect your overall portfolio too much. Even if your portfolio is severely impacted, you’ll have to see if it is worth realising these losses during a downtown. If you’re able to ride out short-term volatility, you can reap the benefits of long-term rewards.

But of course, the case of a complete market crash is possible. So invest the amount you’re comfortable with losing just in case.

#4 Commit to your long-term portfolio

Unless you’re day-trading (which we highly recommend not to do as an amateur), you should understand that your investments are to help you accumulate wealth for the long haul. You might be drawn to constantly check your portfolio every single day, but doing so will only tempt you to withdraw your money during a high or a low and invest based on your emotions.

You’ll need to learn to detach yourself from the returns at every point in time and believe in the process that the returns are meant for a long-term goal and not for the short-term.

Low-risk investment tools for beginners to invest in

#1 Bonds

Bonds are essentially IOUs that lenders like corporate firms or governments issue to you in exchange for lending them money. They do not provide very high returns but they are considered a very reliable investment tool. They also work like dividends as they provide a regular stream of income for you, and are very stable.

One example of a bond you can consider is the Singapore Savings Bonds (SSB) which is a type of Singapore Government Securities. They are backed by the Singapore government and hold the highest ‘AAA’ credit rating, making it extremely unlikely that they will not be able to repay you the debt. SSBs pay out dividends every six months, and have an interest rate of about 1.5% to 3.5% p.a.

#2 Endowment plans

Endowment plans are a mix between a savings plan and an insurance plan. You put in a sum of money either as a single one-off lump sum or as regular premiums. Once the plan matures, you will be able to get back your money with the interest.

Short-term endowment plans have been gaining traction recently, and usually have a policy term of about one to five years, compared to the traditional endowment plans with a longer policy term of about 10 to 25 years, or up to a specific age like 100 years old. Because of the lower interest rate, they are considered safe and can be used to save for your retirement, your child’s education or other milestones.

#3 Fixed deposits

Fixed deposits, also known as time deposits, earn you interest that’s guaranteed for the money you park in the bank for a specified period of time. Though interest rates aren’t extremely high, this is one of the safest investments out there. You’ll be glad to know that your deposits are insured by the Singapore Deposit Insurance Corporation (SDIC) for up to S$75,000.

Usually, banks offer higher interest rates to those who commit to a longer tenure of usually up to 36 months, and those who commit a higher deposit. The interest rates differ monthly, and the interest rate you earn is dependent on when you opened the fixed deposit account. You’ll also receive interest that’s given out at regular intervals, usually either quarterly or annually.

#4 Robo-advisors

If you’re just starting out but want higher returns, maybe a robo advisor is the solution for you. As its name suggests, robo-advisors are backed up by Artificial Intelligence (AI) to do all the investing for you so you won’t have to worry about readjusting your portfolio when the market changes. They first gather information from you through an online survey and invest for you based on your risk appetite.

With robo-advisors, all you need to do is to park a sum of money into one of their portfolios that you prefer and you’re done! They often use passive index investing strategies to replicate the market, and usually ensure a very diversified portfolio to make your investments less volatile and more stable.

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#5 ETFs

As mentioned earlier, ETFs are generally safer than individual stocks and are great for those who are just starting out. This is because they are a basket of securities that tracks an underlying index, making them diversified and less volatile.

Check out these brokerage accounts in Singapore to kickstart your ETF journey!

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How to start investing in Singapore?

#1 Identify what investments to buy

First, identify which investment vehicle you want to invest in. It’s not as easy as selecting one and then calling it a day. Consider the financial goal you’re investing for. If it’s for a short-term goal in about five years to upgrade your home, you can consider fixed deposits or a short-term endowment plan that will give you interest yet provide enough safety to keep your funds intact.

If you have a longer time horizon like saving for retirement, you can consider other investment vehicles with higher risk and higher returns to reap the long-term returns and ride out the volatility.

#2 Open an investment account

Next, depending on the investment vehicle you choose, open an investment account. Whether it’s a robo-advisory platform or a brokerage account for stocks, SingSaver lets you compare the best rates across the market for the best deals. Keep your eyes peeled for sign-up promotions.

If you choose other investment types like SSBs, fixed deposits or endowment plans, you can go ahead to their respective websites to create an account when their tranche is open.

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#3 Fund your investment account

Probably one of the most difficult steps is to fund your account. Putting in your hard-earned money can be scary because there is a possibility that you might lose your capital or have your liquid funds locked in. But if not now then when? The earlier you start, the higher the returns you can make because of the power of compounding, and the longer time horizon you have to accumulate your wealth. Decide what is a sustainable amount you can easily set aside every month, after taking into consideration savings and fixed expenses.

#4 Sit back and relax

Once you’re done with the above, you’re all set! It’s time to let go and trust the process. A word of advice is to avoid checking your investment portfolio too frequently as it might tempt you to be on edge when you see dips in the market. One seasoned investor even deletes and re-downloads his investing app for each trade. Especially if it's a long-term investment, remember that investments generally appreciate over time if you manage to ride out the short-term volatility.

In conclusion

Investing can be compared to quality relationships, as both require patience and time. Currently, there are more investment options than ever before, with new ones regularly streaming in. Before you make a choice however, you must first determine your investment profile. Then, you need to research various instruments before selecting those that fit your purposes.

Remember, investing is not a get-rich-quick scheme. Time is needed for your investments to grow and for you to hone your skills as well. As you improve, so will the quality of your portfolio. It’s a rewarding journey in more ways than one, so take your first steps. It only gets easier from here.

Read these next:
Investment Guide: SingSaver’s One-Stop Investment Shop
Guide To Property Investment In Singapore
A Guide To Halal Investments In Singapore
Uniquely Singaporean Things We Do To Accumulate Wealth
8 Investment Masters To Follow In 2021 For A Solid Portfolio

Take This Before You Go: A Must-Read Guide For Budding Investors

SingSaver team

Investing is an essential skill to have, allowing you to manage your finances better and achieve life goals quicker. Here’s all you need to know before you take the plunge.

What’s the difference between saving and investing?

How much do I need, then?

What is an ideal rate of return?

What are the risks of investing?