Investment Strategies for New Investors

Investing can seem daunting, especially for those just starting. But with the right investment strategy, you can navigate the complexities of the market and build a portfolio that aligns with your financial aspirations. In this guide, we'll explore various investment strategies, catering to different risk appetites, time horizons, and financial goals.

>> Read more about popular investment types.

New to investing? Check out these helpful resources to get started:

• 4 Investing Tips All Beginners Should Know

• How Much Savings Should I Have When I’m 35?

• Best Fixed Deposits in Singapore

• Pros and Cons of Keeping Your Savings in Your CPF Special Account

• Singapore Savings Bond: Interest Rates and How to Buy

An investment strategy is a structured approach to selecting and managing investments. It's your roadmap to achieving your financial goals, whether it's saving for retirement, buying a home, or building long-term wealth. A well-defined strategy helps you make informed decisions, manage risk, and stay on track towards your objectives.

Key factors that influence your investment strategy include:

• Risk tolerance: How much risk are you comfortable taking with your investments?

• Investment horizon: How long do you plan to invest your money?

• Financial goals: What are you hoping to achieve with your investments?

• Asset allocation: How will you spread your investments across different asset classes (e.g., stocks, bonds, real estate)?

• Investment approach: Will you take a passive approach (tracking the market) or an active approach (trying to beat the market)?

>> Learn how to start investing in Singapore.

In Singapore, the Central Provident Fund (CPF) and the Supplementary Retirement Scheme (SRS) are the primary retirement savings vehicles. These government-backed schemes offer tax benefits and a range of investment options to help you grow your retirement nest egg.

• CPF Investment Scheme (CPFIS): Allows you to invest a portion of your CPF Ordinary Account (OA) and Special Account (SA) savings in a variety of instruments, including stocks, bonds, unit trusts, and ETFs. This allows you to potentially earn higher returns than the default CPF interest rates. However, it's important to remember that CPFIS investments are subject to market risk.

• SRS: A voluntary scheme that lets you contribute pre-tax income, which can then be invested in a wider range of assets, including overseas investments. SRS contributions are eligible for tax relief, and investment gains within the SRS account are tax-deferred until withdrawal.

>> Ready to start investing? Take a look at the best brokerage accounts in Singapore.

Buy-and-hold is a time-tested strategy that embodies the essence of patience in investing. It involves carefully selecting assets you believe in and holding them for the long haul, weathering market volatility along the way. This strategy is founded on the principle that markets tend to appreciate over time, rewarding those who stay the course. It requires discipline and a long-term perspective, but it can be a powerful way to build wealth steadily. Buy-and-hold investors often focus on fundamentally strong companies or broad market index funds, trusting in their ability to generate returns over the long run.

A key advantage of buy-and-hold investing is its simplicity. Once you've selected your investments, you don't need to constantly monitor the market or make frequent trades. This saves you time and effort, and it can also help you avoid impulsive decisions driven by short-term market fluctuations. Additionally, buy-and-hold can be more tax-efficient, as you're not realising capital gains as frequently as you would with active trading. This strategy aligns well with the principles of long-term investing, allowing your investments to compound over time and potentially generate significant returns.

>> Learn when to hold investments (and when to let go). 

For those who thrive on market dynamics and enjoy the challenge of timing the market, active trading offers an alternative path. Active traders buy and sell assets more frequently, aiming to capitalise on short-term price fluctuations. This strategy demands a deeper understanding of market mechanics, technical analysis, and risk management. Active traders often use charts, indicators, and news events to inform their decisions. While active trading can potentially yield higher returns, it also carries greater risks and requires significant time and effort to monitor the market and execute trades effectively.

Successful active trading requires a combination of skills, including market analysis, risk assessment, and emotional discipline. Traders need to be able to identify opportunities quickly, manage risk effectively, and avoid emotional biases that can lead to poor decisions. Active trading can be particularly appealing in volatile markets, where price swings create more opportunities for profit. However, it's important to remember that active trading is not a guaranteed path to riches. It requires dedication, expertise, and a willingness to accept higher risks in pursuit of potentially higher returns.

>> Find out more about market timing. 

Dollar-cost averaging is a disciplined approach that takes the emotion out of investing. Instead of trying to time the market, you invest a fixed amount of money at regular intervals, regardless of market conditions. This methodical approach helps to average out your purchase price over time, reducing the risk of investing a lump sum at a market peak. DCA is particularly suitable for risk-averse investors who prefer a steady, consistent approach. It's also a great way to start investing with smaller amounts, gradually building your portfolio over time.

DCA can be a particularly effective strategy in volatile markets. When prices are down, your fixed investment amount buys more units, and when prices are up, you buy fewer units. This helps to smooth out your average cost over time, potentially lowering your overall cost basis. Furthermore, DCA can be a good psychological tool, as it removes the temptation to time the market and encourages consistent investing, even when the market is turbulent. 

>> Examine dollar-cost averaging vs. lump sum investing.

Index investing is a straightforward yet effective strategy that aims to match the market's return rather than trying to beat it. By investing in index funds or ETFs that track a specific market index like the Straits Times Index (STI), you gain instant diversification and exposure to a basket of securities. This strategy is favoured for its simplicity, low costs, and ability to deliver market-level returns without the need for active stock selection. Index investing is a cornerstone of passive investing, allowing you to participate in the market's growth without the complexities of individual stock analysis.

Index investing is particularly well-suited for long-term investors who believe in the overall growth of the market. By tracking a broad market index, you essentially own a piece of the entire market, benefiting from the collective performance of its constituents. This diversification helps to reduce risk, as the performance of a single company is less likely to significantly impact your overall portfolio. Moreover, index funds and ETFs typically have lower expense ratios than actively managed funds, making them a cost-effective way to invest.

>> View the best ETFs in Singapore.

Growth investing is about seeking out opportunities in companies and sectors poised for rapid expansion. These investments often involve emerging industries, innovative technologies, or companies with disruptive business models. Growth investors are willing to accept higher risks in pursuit of potentially higher returns. In Singapore, sectors like technology, healthcare, and renewable energy are often considered fertile ground for growth investing. However, it's essential to conduct thorough research and due diligence to identify companies with sustainable growth potential and avoid speculative bubbles.

Growth investing requires a keen understanding of industry trends, competitive landscapes, and company fundamentals. Investors need to be able to identify companies with a strong track record of innovation, a sustainable competitive advantage, and a large addressable market. Growth stocks often trade at higher valuations, reflecting their future growth potential. This means that growth investing can be more volatile, as investor sentiment and market expectations can significantly influence stock prices. However, for those willing to embrace the risks, growth investing can offer the potential for substantial returns as these companies capitalise on their growth opportunities.

>> Learn the difference between growth stocks and dividend stocks.

Value investing is the art of finding hidden gems in the market – companies that are undervalued by the market but possess strong fundamentals and long-term potential. Value investors meticulously analyse financial statements, company performance, and industry trends to identify stocks trading below their intrinsic value. This strategy requires patience and a contrarian mindset, as you're essentially betting against the market's current assessment. When the market recognises the true value of these undervalued companies, value investors can reap significant rewards.

Value investing often involves looking for companies that are temporarily out of favour due to short-term challenges or market sentiment. These companies may have experienced setbacks, but their underlying business remains strong. Value investors seek to capitalise on these situations by buying stocks at a discount, believing that the market will eventually correct itself and recognise the true value of these companies. Value investing can be a rewarding strategy, but it requires a disciplined approach, a long-term perspective, and the ability to conduct thorough research and analysis.

>> Check out our guide to value investing in Singapore. 

Income investing focuses on generating a steady stream of income from your investments. This strategy is particularly appealing for those seeking passive income or those nearing retirement, as it provides a regular flow of cash to supplement other income sources. Dividend-paying stocks and Real Estate Investment Trusts (REITs) are popular choices for income investors. Companies with a history of consistent dividend payments, such as established blue-chip companies, can provide a reliable income stream. REITs, which invest in income-generating real estate properties, are particularly attractive in Singapore. They are required to distribute at least 90% of their taxable income to shareholders as dividends, making them a compelling option for income-seeking investors.

Dividend income is also generally tax-exempt in Singapore, further enhancing its appeal. This tax advantage allows you to keep more of your investment income, contributing to your overall financial well-being. Income investing can be a valuable strategy for generating passive income, supplementing retirement income, or achieving other financial goals that require a regular cash flow. By carefully selecting dividend-paying stocks and REITs, you can build a portfolio that generates a steady stream of income while also benefiting from potential capital appreciation over the long term.

>> Find out how to grow a passive income portfolio in Singapore. 

Socially responsible investing (SRI) goes beyond financial returns, considering environmental, social, and governance (ESG) factors when making investment decisions. This strategy allows you to align your investments with your values and contribute to positive change in the world. SRI investors often seek out companies with sustainable practices, ethical business conduct, and positive social impact. They may choose to invest in companies that promote renewable energy, support fair labour practices, or champion diversity and inclusion. By investing in companies that align with their values, SRI investors can feel good about their investments while also seeking financial returns.

In Singapore, the availability of ESG-focused funds and ETFs is increasing, providing more options for socially responsible investors. These funds and ETFs typically invest in companies with strong ESG ratings, allowing you to participate in the growth of sustainable and responsible businesses. SRI is a growing trend in the investment world, as more investors seek to make a positive impact with their capital. It offers a way to combine your financial goals with your values, creating a portfolio that reflects your commitment to a better world.

>> Balance ESG investing in your investment portfolio.

Passive investing is a low-maintenance approach that aims to match the market's return rather than trying to outperform it. This strategy involves investing in index funds, ETFs, or using robo-advisors to build a diversified portfolio that mirrors the market's performance. Passive investing is ideal for busy individuals who lack the time or expertise for active stock picking. It offers a simple, cost-effective way to participate in the market's growth without the need for constant monitoring and trading.

Passive investing is based on the belief that markets are generally efficient, and it's difficult to consistently beat the market over the long term. Instead of trying to pick individual winners, passive investors aim to capture the market's overall return by investing in a broad basket of securities. This approach eliminates the need for extensive research and analysis, making it a convenient option for those who prefer a hands-off approach to investing. Additionally, passive investments typically have lower expense ratios than actively managed funds, further enhancing their appeal for cost-conscious investors.

>> View Singapore’s favourite passive income strategies.

Core-satellite investing is a balanced approach that combines the stability of passive investing with the growth potential of active investing. This strategy involves building a "core" portfolio of stable, long-term investments, typically index funds or ETFs, and a "satellite" portfolio of higher-risk, higher-growth investments, such as individual stocks or sector-specific funds. This approach allows you to benefit from market-level returns while also pursuing targeted growth opportunities.

The core portfolio provides a solid foundation for your investments, offering diversification and stability. The satellite portfolio allows you to express your investment convictions and potentially achieve higher returns by focusing on specific sectors, companies, or investment themes. This combination of stability and growth potential makes core-satellite investing a versatile strategy that can be adapted to different risk profiles and investment goals. By adjusting the allocation between the core and satellite portfolios, you can fine-tune your risk exposure and tailor the strategy to your individual needs.

>> See best blue chip stocks in Singapore.

Your investment time horizon significantly influences your strategy. Short-term goals, like saving for a down payment on a flat, require a more conservative approach with lower-risk investments like Singapore Savings Bonds (SSBs), fixed deposits, and money market funds. Long-term goals, such as retirement planning, allow for a greater allocation to higher-growth assets like stocks, ETFs, and REITs.

>> Discover the best short- and long-term endowment plans in Singapore. 

The relationship between risk and reward is fundamental to investing. Higher-risk investments have the potential for higher returns, but they also come with a greater chance of losing money. Conversely, lower-risk investments offer more stability but may generate lower returns. Diversifying your portfolio across different asset classes and risk levels is crucial to managing risk and optimising returns.

Depending on your knowledge, experience, and comfort level, you can choose between managing your investments yourself (DIY investing) or seeking professional help. DIY investors can leverage online brokerages, research platforms, and financial tools to build and manage their portfolios. Robo-advisors offer a more automated approach, while financial advisors provide personalised guidance and tailored investment plans.

• DIY investors:

  • SGX Stocks and ETFs: Invest directly in stocks and ETFs listed on the Singapore Exchange (SGX).

  • Online Brokerages: Utilise online brokers like Tiger Brokers, Saxo, and FSMOne for trading and research.

• Robo-Advisors:

  • StashAway, Syfe, Endowus: Consider robo-advisors for automated portfolio management and goal-based investing.

• Financial Advisors:

  • MAS-Licensed Advisors: Consult with licensed financial advisors for personalised investment advice and planning.

By understanding these key principles and exploring the various investment strategies available, you can confidently embark on your investment journey and work towards achieving your financial goals. Remember to always do your own research, assess your risk tolerance, and consider seeking professional advice when needed.