Beginner’s Guide: Investing Made Easy for First-Timers

Investing might seem scary for beginners – it’s natural, but it doesn’t have to be. While investment mistakes can’t always be prevented but basic financial understanding and research may help to make more informed choices and avoid losing your hard-earned money. Gear up, and be more financially informed as we share tips on investing made easy for first-timers

But first, you need to ask yourself a few questions:

How much am I willing to invest?
Note that any investment comes with risk and you should only risk the amount of money that you can afford to lose.

What’s my financial goal?
You should consider what you need that money for, how much money you need and when you need it.

How involved do you want to be?
Passive investing centers around buying and holding, essentially – invest for the long haul. On the other hand, active investing requires more attention from the investor and is a more hands-on approach but allows the investor to take advantage of stocks’ short-term fluctuation.

Risks and Return Trade-off

The risk-return tradeoff refers to how a potential return increases with an increase in risk. With this principle in mind, individuals associate low levels of uncertainty (risk) with low potential returns, and high levels of uncertainty with high potential returns. We take a look at some options across the spectrum: 

If you’re looking for: lower risk, lower potential returns

SSB interest rate steps us each year, starting off at 2.01% for the first year and increasing to 2.45% for 10th year. This is a low-risk investment with the strongest ‘AAA’ credit (highest possible rating assigned to an issuer’s bonds by credit rating agencies).

From June 2019-September 2019, the interest rate for Ordinary Account is 3.0% and for Special and Medisave Accounts, it is 5.0%. These are very good returns for a low-risk investment but the money you invest is locked in until your CPF payouts begin at ages 60-65. In exception cases of when you choose to use it for housing, investment, insurance or medical spending. 

In a nutshell: Both SSB and CPF are suitable for passive investment approach and investors leave their money in these investments for long-term to get the best returns. The risk is almost nonexistent but investors must be willing to leave their cash. 

  • Robo Advisors

Robo advisors refer to digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision. Different companies have varying minimum investments and yearly advisor fees (ranging from 0.2%-1.0% of the returns), as well as different portfolios. An advantage of using Robo Advisors is that your assets are automatically diversified, which minimises the risk of large losses.

If you’re looking for: higher risk, higher potential returns

  • Stocks and Exchange Traded Funds (ETFs)

ETFs refer to funds pooling investors’ monies to make large investments into numerous assets, including stocks. ETFs are often diversified as investment is spread out across different companies and industries.

Investors monitor ETFs through the Strait Times Index (STI) ETF, which is reviewed quarterly. While investing in stocks may promise higher potential returns, investors will be vulnerable to stock market crashes that occur during a financial crisis.

Additionally, investing in stocks directly allows you to skip advisor fees, even if you’d still need to pay (a lower) management fee.

The risk-return tradeoff refers to how a potential return increases with an increase in risk. 

This is simply a brief introduction to investment opportunities suitable for first-time investors in Singapore, there are countless other options waiting for you. Regardless of the type of investment that interests you, you’re recommended to:

  • Know your view
    Your “view” refers to your perspective or opinion regarding future markets, businesses or countries. It’ll help you source investments that you believe may have higher potential returns. Avoid being too susceptible or being too trusting towards your friends/ family’s recommendations and investing in something you don’t believe in or have zero knowledge about.
  • Know your risk appetite
    This is absolutely crucial to find the right investments for you and determine how much you should invest in each asset. An investor’s risk appetite is often dependent on personality, past experience, age and current circumstances. Being acutely aware of your risk profile will help build your investment portfolio.
  • Know your investment
    Do your research. Do not go blindly into an investment because your hard-earned savings are at stake! You can check the company’s financial strength and level of risk by looking up their credit rating or investment grade.

Now that you’re equipped with some foundational knowledge, take the first step with our Investing 101 Workshop. In this workshop, we’ll guide you to:

  • Grasp fundamentals of investing
  • Understand financial markets
  • Make your first trade by the end of the session

To register, click here.

Written by

Shannon Tan

Last updated on

June 25th 2019, 4:06 pm

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