6 affordable ways for the average Singaporean to invest


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Even if you don't have S$100,000 (or more), you can start investing—or making your
money work harder. Here are some ways to do so.

Regular savings plans, which give you exposure to blue-chip stocks, bonds, and exchange traded funds from S$100 a month.

Build your own portfolio of stocks, by buying small lots. The smallest lot size of a Singapore Exchange (SGX)-listed stock is 100.

Bonds can be useful to investors who seek some sort of fixed income. There are a handful of retail bonds listed on the SGX, as well as Singapore Savings Bonds, which offer returns of between 2% and 3% and require just S$500 in initial investment.

Track the Straits Times Index with an exchange traded fund.

There is the option of moving your CPF Ordinary Account to your Special Account to enjoy higher interest rates.

Not everyone has S$100,000 to invest in a well-diversified portfolio. But even if you don’t have that amount, it is still possible to start investing.

Here’s why. The good news is that you live in one of the world’s biggest financial hubs, and there are products that cater even to those on modest incomes. Here are a few to consider:

RSPs let you invest small sums of money on a regular basis. Some RSPs give you exposure to blue-chip stocks, bonds, and exchange traded funds for a minimum monthly sum of just S$100.

If you set aside S$100 and invest in “XYZ” shares, for example, you will get 100 shares if the price is S$1 per share. If the price is S$2 per share, you will get 50 shares, and so on. You can buy and sell these shares as per normal, and you will also get dividends if they are paid out.

The process results in dollar-cost averaging. Your average cost falls if the stock price declines over the term of your purchase period.

The Singapore Exchange (SGX) has reduced lot sizes to 100. In the past, we had to buy in lots of 1,000. So if the share price is S$3 per share, you can get invested for just S$300 instead of S$3,000.

Thanks to smaller lot sizes, you can now start investing earlier. It’s also easier to start building your own portfolio, which would mean not having to pay management fees to professional asset managers.

However, do be wary of transaction charges. If you are buying in small lots, check if there is a minimum transaction charge (some brokerages charge an absolute minimum brokerage fee per transaction).

In May 2016, the Singapore Exchange (SGX) started offering more bonds to investors. This is largely thanks to the Monetary Authority of Singapore (MAS) creating a bond seasoning framework which makes bonds available “over the counter”.

Previously, corporate bonds in Singapore were mostly for the wealthy. They had high minimum investment amounts, sometimes to the tune of S$200,000 or more. Now, however, you may be able to find these bonds for smaller amounts, such as S$1,000.

Bonds can be useful to investors who seek some sort of fixed income.

Of course, you still need to do your own due diligence on the companies offering the bonds, to better understand the risk of default relative to the yields for effectively lending your money to the company issuing the bonds.

An STI ETF tracks the top 30 blue chip stocks on the STI. There are two fund houses offering such an ETF: Nikko Asset Management and State Street Global Advisors (under its SPDR brand).

Some investors may choose to forego picking which blue chips they want, and just have their money spread across the top 30. This is what an STI ETF does, and it permits for easy, cheap diversification.

However, note that it has some limitations. Because the top companies are primarily dominated by banks, the STI ETF could be a little more tied to movements in the finance sector, compared to other industries.

These bonds produce returns of between 2% and 3% (tied to Singapore Government Securities) when held to maturity (10 years). Some may prefer them to fixed deposits and will enjoy the relative safety of the asset. It’s also quite flexible for a bond, as you can cash out any month without losing the accrued interest. This makes up for the fact that, unlike corporate bonds, SSBs cannot be sold on a secondary market.

At a minimum of just S$500, SSBs are designed to be an affordable option for the average Singaporean.

As a last resort, if you don’t want to invest, you still have your CPF SA. Assuming you have sufficient cash in the bank to make the down payment on your flat, and to pay the mortgage, you can move money from your Ordinary Account (OA) to your SA.

This will give you an interest rate of up to 5%. And your funds are held for you by a government with the highest/strongest credit ratings available from a number of international ratings agencies. But you cannot access your funds until you retire and it slowly pays out until you reach 90 years of age. But there’s a lot to be said for having stable income when you’re older.

This article, which first appeared on The Fifth Person, is reproduced with edits and permission.

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