You don’t need $10,000 to start investing
Investing is said to be a milestone of adulting. Afterall, unless we went to business school or attended finance classes, few of us would have thought about investing for ourselves. It’s intangible: You can’t sniff it, touch it, or hear it.
Investing is also perceived to be expensive. A few people we spoke to told us that they aren’t investing because they do not have S$10,000 of savings.
Truth is, you don’t need much to start investing. But because investing is for the long-term, and we want you to invest healthily, here’s what you should have before you start to invest:
- Emergency savings of 6x your income;
- An insurance plan(s) in place; and
- Good grip over your debt
Why is investing for the long-term?
“A journey of a thousand miles begins with a single step,” so goes the Chinese proverb. Take legendary investor Warren Buffett for example. He is now said to be worth US$84 billion, but reportedly started his first investment with only US$228!
The story also goes that within days of making his first investment, he lost a third of it. When it bounced back, he sold the shares at US$2 each, and made a profit. To his dismay, the share went on to rise to US$162 – oh, profits! So, he learnt to buy good, buy cheap and hang on.
How can we invest on a beginner’s salary?
These 5 tips will help you.
1. Make regular, small investments
You can become a shareholder of a company, by buying its shares. It’s possible to invest in Singapore stocks in ‘board lots’ of only 100 units, through a trading platform such as DBS Vickers Online. So, if you fancy Stock X which costs S$3.35, you can start investing in it for around S$335, plus some brokerage fees.
However, if you prefer buying an Exchange Traded Fund (ETF) that mirrors the performance of the Singapore stock market or a bond ETF, you can start investing for as little as S$100 a month through DBS Invest-Saver.
You can also start investing in unit trusts with an initial $1,000 (and much lower amounts subsequently, depending on the fund). For some unit trusts, the starting amount is an even lower S$100 if you can commit to regular investments each month.
One advantage of regular, small investments is you are not trying to time the market. This is a disciplined plan of investments, known as dollar-cost averaging, that will average out the cost of share purchases.
More importantly, you are relying on “time in market” rather than “timing the market.” And this is important because historically, good quality stocks have their ups and downs, but over the long term, their prices will tend to trend higher. By staying invested for longer, you achieve the “time in market” factor.
In contrast, timing the market is a very difficult task, because it involves trying to pick the moment when stock prices are at lows. Even highly-trained professionals find it difficult to do this consistently.
2. Use your CPF
As long as you have more than S$20,000 in your CPF Ordinary Account (OA), that “excess” can be used to invest. Monies in your CPF-Special Account (SA) can also be used for investment, but the threshold is higher, at S$40,000.
Before you invest, make sure that you’re aiming for a return that’s bigger than the guaranteed CPF interest rates of:
- 2.5% for your CPF-OA;
- 4% for your CPF-SA; and
- 1% bonus interest on the first S$60,000 in your CPF account
If you’re deciding whether to invest with your CPF-OA or CPF-SA, always prefer the OA. That’s because you earn a lower interest rate of 2.5% in the CPF-OA, i.e. a lower return level to “beat”.
To start investing using your CPF funds, open a CPF investment account with an approved CPF Investment Scheme (CPFIS) agent. You can use this account to invest in stocks, unit trusts, and bonds, among other things.
You can invest a maximum of 35% of your “investible savings” in stocks and 10% for gold. “Investible assets” refers to whatever is in your CPF-OA, plus the amount of CPF you have withdrawn for investment and education.
3. Use your bonuses!
You may feel like a kid in the candy store when you get your bonus – so much money, so many things to get!
But if you can just resist the urge to blow your bonuses on expensive watches or holidays, you can boost your regular savings and investments with that sum of money.
4. Use your ‘untouchable’ tax savings
With the Supplementary Retirement Scheme (SRS), you can top up your account with a maximum of S$15,3000 each year to get the maximum tax relief. And because it makes more sense to leave the monies within the scheme (than withdraw it before you turn 62), that S$15,300 can be put to work in investments, rather than sitting idle and earning a paltry 0.05% each year.
5. Build a portfolio without timing the market
You can start to build a diversified, multi-asset class portfolio even on a beginner’s salary. That can take just S$1,000 to start, with some boosting power from ad-hoc amounts when you get your bonus, or when you top-up your SRS account.
The portfolio can include:
- Single stocks
- REITs (real estate investment trusts)
- Singapore Savings Bonds
- Stock ETFs
- Stock unit trusts
- Bond ETFs
- Bond unit trusts
And if you’d like to dive deeper, we’ve compiled a list of useful reads to help you invest better: