By Navin Sregantan
If you've only got a minute:
- NS offers a unique opportunity to begin investing early, leveraging stable allowances and compounding for significant long-term wealth growth.
- Developing disciplined investment habits through accessible options like DCA with ETFs, unit trusts, or discretionary portfolios can build a robust financial foundation and mitigate market risks, preparing young investors for future financial independence.
- The early financial discipline and practical investment experience gained during NS will provide invaluable literacy and confidence, setting you on a path towards lasting financial security.
Inflation erodes the purchasing power of your money over time. As prices generally climb, your hard-earned savings buy less and less if left idle. For instance, a S$100 basket of goods today could cost over S$120 in a decade, even with a modest 2% annual inflation. This highlights the key need to make our money work harder if we want to build a secure financial future.
While a stable, low level of inflation (around 2% to 3%) is often considered healthy for an economy, everyone's "true" inflation rate varies due to our individual consumption patterns.
Fortunately, numerous investment strategies and options exist to help your savings grow and outpace rising costs. Cultivating an investment habit early on offers significant advantages, primarily due to the powerful effect of compounding.
The period when you serve your National Service (NS) presents an opportune time to embark on this financial journey.
Why start investing during NS?
NS can be a surprisingly advantageous window to kickstart your investment journey. Unlike peers juggling university expenses or full-time jobs, full-time national servicemen (NSFs) typically benefit from a stable, albeit modest, monthly allowance.
For many, particularly those staying in-camp, living expenses and financial commitments are significantly lower, as accommodation, food, and basic necessities are largely provided.
This unique situation is ideal for cultivating financial discipline and allocating a portion of your allowance towards investments, rather than letting it sit idle.
Crucially, mistakes made via investing a smaller amount during NS are far less impactful than those made with a larger salary later. In other words, it is a great opportunity to experiment, understand market fluctuations, and build confidence in financial decisions without the immense pressure of significant obligations.
Developing these habits and gaining practical investment experience early on fosters a robust financial mindset, setting a solid foundation for long-term wealth accumulation.
Ready to seize this opportunity? Here are compelling reasons why NS is an excellent time to embark on your investment journey.
Harness the power of compounding
As the saying goes, "Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn't, pays it." This highlights the significant financial advantage that lies in growing your money not just on your initial investment, but also on the accumulated returns.
For young investors, understanding and leveraging this principle is crucial for long-term wealth accumulation. Starting early, even with modest sums, provides more time for your investments to grow exponentially. Building a strong financial foundation, especially for retirement, requires consistent investing, and the sooner you begin, the more impactful compounding becomes.
The investment amount that you commit can differ greatly, even at a relatively young age. A 25-year-old aiming for S$1.3 million by age 65 (assuming a 5% annual return) would need to invest around S$850 monthly. Delaying by just 10 years, starting at 35 instead, would almost double the required monthly contribution to nearly S$1,560!
NSFs, typically in their late teens to early 20s, are perfectly positioned to leverage this advantage. This head start, amplified over decades, can lead to a substantially larger sum by retirement, often requiring far less effort later in life.
NS offers a unique and invaluable opportunity to build this momentum when time is truly on your side.
Read more: Harness the power of compound interest
Building consistent investment habits
A key advantage during NS is the ability to start investing without the need for large lump sums. Your stable monthly allowance, even if modest, can be strategically allocated to kickstart your investment journey.
Discipline is central to building strong financial habits, and regularly investing a portion of your allowance through Dollar-Cost Averaging (DCA) is an excellent starting point.
With DBS, you can make recurring investments via a Regular Savings Plan (RSP) like Invest-Saver for as little as S$100 per month. This accessible entry point allows you to begin investing without committing significant portions of your income.
These plans typically offer significant flexibility. There are no lock-in periods, and you can top up, terminate, or redeem your investments anytime via digibank.
DCA ensures your money spends "time in the market," buying more units when prices are low and fewer when high. This approach helps mitigate market volatility and reduces the stress of trying to "time the market." By investing regularly, you build financial discipline and practical experience, laying a solid foundation for future wealth accumulation.
Grow capital through reinvestment & long-term returns
While generating significant passive income may be challenging for young investors like NSFs, the primary focus should be on long-term capital growth.
As your portfolio generates returns (capital appreciation and dividends), reinvesting them is often the smartest strategy. This enhances compounding, accelerating the growth of your investment base.
By focusing on reinvestment, you actively build a robust foundation for future wealth, ensuring each dollar invested today maximises its potential for substantial growth over time.
As your investments grow, so too will your dividends, eventually providing passive income. Options like ETFs, unit trusts, and discretionary portfolios often facilitate this by focusing on reinvesting income.
Exploring accessible investment options for NSFs
Investing in a single stock or a handful carries high risk and demands constant market attention due to firm-specific risks. Building a diversified portfolio from scratch can also be time-consuming.
For NSFs, several investment options are particularly suitable for regular, small contributions and effective portfolio diversification. These include ETFs, unit trusts, and discretionary portfolios like digiPortfolio.
Pooled investment products like these are often the most accessible starting point, offering immediate diversification and reducing company-specific risks.
ETFs
These are baskets of securities (e.g., stocks or bonds) that track an index, sector, or commodity. They offer immediate diversification and reduced company-specific risks with a single transaction. Generally low-cost and easy to manage, you only need to monitor the underlying index rather than multiple individual stocks.
Read more: How to start investing in ETFs
Find out more about: ETF investing with CIO Insights Funds
Unit trusts
These pool money from many investors into a diversified portfolio, professionally managed by a fund manager. This provides diversification with less personal monitoring, as experts research and deploy funds according to an investment mandate, making it a good option for a hands-off approach.
Read more: A beginner’s guide to unit trusts
Find out more about: Starting investing with CIO Insights Funds
Discretionary portfolios (e.g., digiPortfolio)
These offer ready-made, professionally managed portfolios tailored to different risk profiles. They provide diversified exposure across various asset classes and geographies, simplifying the investment process for beginners. This allows NSFs to start investing with an expert-designed strategy without needing deep market knowledge.
Read more: digiPortfolio, a robo-advisor for all
Find out more about: digiPortfolio
Adopting a hybrid approach
A hybrid approach combines DCA to consistently build your investment base by investing fixed amounts at regular intervals. This helps smooth out market fluctuations and reduces the need to "time the market."
You can then supplement this with lump-sum investments during compelling market opportunities or volatile periods. For example, you can set a recurring investment through Invest-Saver and when there are compelling opportunities, you can make a lump-sum investment.
DCA works best with diversified investment products such as ETFs, unit trusts, or discretionary portfolios like digiPortfolio, which offer instant and affordable diversification to spread risk across various assets.
These products are often managed by professional portfolio managers who conduct detailed research and invest funds according to a specific mandate, effectively taking the guesswork out of investing for you.
How to get started
To invest in ETFs, apply for a DBS Vickers Young Investor Account. This grants access to a wealth of resources to kickstart your investment journey, offering flat commission fees across all markets and no custody fee on foreign shareholdings. We'll also set up a new DBS Multi-Currency Account (MCA) for convenient trade settlement and dividend crediting.
If you prefer to invest in a select group of Singapore-listed ETFs, unit trusts, and digiPortfolio, you can do so directly via digibank. If you're unsure which investments suit you, consider using the digital financial advisory tool in digibank. This tool helps ascertain your risk profile and ensures you've set aside adequate emergency cash and protection before investing any surplus funds.
If you are facing "choice paralysis" or are simply unsure of where to start, we’re here to help simplify the decision-making process with CIO Insights Funds.
Curated by the investment experts at DBS, these funds provide a steady base for any portfolio, offering long-term diversification across key markets and asset classes while aligning with the DBS Chief Investment Office's investment outlook.
In summary
NS is more than just a period of national duty but an opportunity to lay a robust foundation for your financial future.
By embracing early investing principles, leveraging the power of compounding, and cultivating consistent habits with accessible tools, you can transform your monthly allowance into a powerful engine for wealth accumulation.
The experience gained now, even with modest capital, will equip you with invaluable financial literacy and discipline that will serve you well for decades to come.
Take advantage of this unique window to embark on your investment journey with confidence, setting yourself on a path towards long-term financial security and prosperity.
