You’ve asked, we’ve answered! SIT, we’re glad to see your hunger to know more about investments. We hope your leaning journey doesn’t end here – check out NAV.sg to get a knowledge boost on all things money-related.
ICMYI: Don’t fret if you missed our DBS Instagram stories ‘cos the answers are posted here (bookmark this page!) and archived in our IG highlights. A few questions were similar in nature so we’ve condensed and edited them.
|Lorna Tan |
Head of Financial Planning Literacy at DBS
Prior to joining DBS, she was the Invest Editor at The Straits Times and The Sunday Times for 16 years, covering finance, money management and consumer protection issues. She is also the author of four best-selling books on personal finance, and is an adjunct Associate Professor at NUS School of Business.
Basically, she’s got this adulting thing in the bag – and she’s here to share her wealth of knowledge so that you can up your game.
Basics to Investments
1. How much do we need to get started on investment? What kind of investment is recommended for undergraduates like us?
There isn’t an exact amount you need to get started on investing, but ensure that you have 3 – 6 months of emergency cash and have suitable insurance cover before you start investing your idle savings.
Before you start investing, understand your own risk profile, knowledge of investment products and financial planning approach. This is because investments are only one part of financial planning that will help you achieve your goals.
You can start with DBS Invest-Saver, a Regular Saving Plans on Exchange-Traded Funds (ETFs) and unit trusts. Invest-Saver is an approach for investment which allow new investors to start their investment journey with as little as $100 on a monthly repeat mode. Time in the market, rather than time the market. Yes, read that again. Treat Invest Saver like how you subscribe to music or TV streaming services, where you pay a monthly subscription fee. Keep that subscription going so that your investment has more time to grow with compound interest.
For those who have more savings and have S$1,000 to spare, you may consider DBS digiPortfolio, a hassle-free, ready-made investment portfolio that offers the perfect match of human expertise and robo-technology. With it, you have an instant, cost-effective way to grow and protect the value of your money through regional or global diversification.
2. As a student with very limited funds in the bank, how should I start investing? What is your rule of thumb for money management while studying/working?
Although the savings guideline is at least 10% of your income, I will encourage everyone to save as much as possible from your monthly pay and annual bonuses. This is because your savings will be the ammunition or war chest to fund your investments. Adopt the Pay Yourself First approach to automatically channel your savings to another account once your pay comes in. Set up a realistic budget and monitor your cashflows. The digital advisory tool NAV Planner can help you do that and more, giving you a holistic picture of your assets and liabilities as well as investing tips.
To empower yourself with investing knowledge, you can visit websites such as NAV.sg, SGX and MoneySense. Banks like DBS will offer access to investment products via their websites. Use the digital advisory tool NAV Planner to set up a budget, monitor your cashflows, ensure you have suitable insurance protection and offer customised tips on how to go about investing, as well as help you plan for financial freedom.
I am currently studying full time and not working. I was wondering what I should do in the meantime (should I already start investing?). When I get my first full time job, what type of safer investments can I consider as well, considering the fact that I may not have much savings to start off with in the first place.
Once you start working, set aside your emergency cash and ensure you have suitable insurance cover if you have dependants, before investing with your idle cash.
If you do not have the time, knowledge and experience in investment, you could look at products such as DBS digiPortfolio, which invest into an array of Exchange Traded Funds (ETFs), hence creating a portfolio instantly, with a little as S$1,000. DBS will review and rebalance your digiPortfolio on a quarterly basis without you having to manage it. Alternatively, start a recurring monthly savings plan in ETFs or unit trust with DBS Invest Saver.
In the meantime, empower yourself with the know-how to understand how to manage your money and invest wisely. We suggest starting with NAV.sg! You can also join a reputable online financial community and learn from others.
How do I start investing? If you have at least $2000, how would you go about investing it? RSP. Dca + long term horizon. Invest saver. Investing regularly with that S$2K
If you have S$2,000, it's better to invest in a diversified portfolio instead of a single stock / equity. DBS digiPortfolio is a good way to get started, as you can start with just S$1,000. Once you're more comfortable with seeing your money make and lose profits, you can venture into higher risk investment options like stocks and options. Regular investments in smaller amounts (like investing in a regular savings plan) is also worth considering, since dollar cost averaging will help to reduce the average investment cost and impact of volatility. Think long-term when it comes to investments, especially since you have youth on your side.
How do I know what to invest in and when to cash-out?
It really depends on your investment objectives.
Consider building multiple income streams via short and long-term investments to achieve your financial goals over time. If you’re starting out on your first investment, visit NAV.sg to understand the different types of investments.
Have an exit strategy when you start investing so that you do not follow what your peers are doing blindly.
An exit plan can be as simple as determining a certain returns threshold you are happy with. When that is reached, cash out! Remember to ask yourself what you’re cashing out for though. Is it because you already reached the goal in mind for this particular investment? Or is it because you’ve gathered enough information to decide that this investment can go no further in bringing you returns? Some of your investments should be for the long-term, so it’s important to ensure you’re not making knee-jerk reactions to cash out based on peer influence or insufficient information.
What would you have done differently when you were just starting out, given your current knowledge and experience in investing and finance?
When I started investing, I relied more on what my friends were telling me, without doing my own due diligence. I invested in two Internet-related unit trusts and got burned when the dot-com bubble burst in 2001. I lost about S$10,000. My loss would have been mitigated if I had adopted a diversified approach instead of sinking all my original sum of money into the two funds.
If I can turn back the clock, I will empower myself with investment knowledge first. I would have took time to understand what is my risk appetite, and how to diversify my risk with optimal asset before plunging into investing.
Does DBS have a program where new people who are interested in investment can be guided?
Check out NAV University, where you can get access to free talks and seminars on a wide variety of topics from personal finance to retirement. We even work with SGX for investment webinars that will help you to beef up your investment knowledge. You can also join a reputable online financial community and learn from others.
There are many robo-investors in the market from banks, fintechs and other financial institutions that you can discover and explore. The difference with DBS’ robo-advisor, digiPortfolio, is that we offer a hybrid-human model where our investment team would monitor and initiate rebalancing whenever necessary, and we use technology to automate processes.
digiPortfolio gives you access to exchange traded funds (ETFs) to create portfolios. Swipe up to read more about how digiPortfolio stacks up against the rest.
With regards to trust, do your own due diligence and look for robo-investors with a good track record and reputation.
Find out how digiPortfolio stacks up against other robo advisors here.
2. I have friends using StashAway and I am tempted to also try investing on that platform. Should I be worried about investing with StashAway?
Good question! Read a review from MoneySmart on StashAway (and other robo-advisors) vs. digiPortfolio here.
3. Index ETFs provides retail investors the ability to diversify at minimal cost, so why do so many retail investors still choose to pick individual stocks and not reap the benefits of diversification
What you need to know is that investors have different risk appetites and financial objectives as well as varying levels of know-how.
Index ETFs are suitable for investors who prefer passive approach to investing (and is also good for those who wish to diversify but at a lower cost), since an ETF is a ready basket of securities already picked out for you. But because it tracks a market index or groups of stocks in certain economic sectors, ETFs can only give you average returns aligned to the market benchmark.
However, those who are investing in individual stocks are seeking returns that beat the market benchmark. If you wish to take this route, you need to do more “homework” to understand and keep track of individual companies you’re investing in and to manage diversification on your own, which carries its own risks.
Find out more about Investing in ETFs here.
I have a group of friends trading options and I am interested in trying it out. What should I look out for and how can I start trading them?
Options are risky investments, where investors can borrow capital from the broker so there’s more exposure from minimal capital from the investor. If markets are bullish - it's very good but if the markets turn bearish and they are in the long position that they are in for some deep losses! If you are new to investing, I won't recommend that you start with options. Empower yourself with the know-how first and do simulated options trading to be more familiar and gain confidence.
Find out more about Structured Products and Options.
If we assume the market is strong form efficient then why do we see over/undercorrection in stock prices when events occur?
The assumption that most analysts adopt is semi-strong form efficiency, not strong form efficiency. Therefore, the impact of insider or private information will still result in the over/under-correction in stock prices.
I am looking to start my investing journey. However, I'm confused over the difference between a CDP account and a brokerage account. Must I have both before I can start investing? Where can I open a brokerage account?
The CDP account is where all the shares you purchase from the local stock market are placed, whereas a brokerage account allows you to trade shares through your brokerage firm like DBS Vickers.
You need to open both a CDP and brokerage account if you are looking to invest in shares. However, there are other ways to invest that do not require the opening of any of the two accounts, such as DBS digiPortfolio.
Are CFDs the same as Equity? My trading platform provides both but one is at a higher transaction cost. what is the difference? The pros and cons of investing in either?
A contract for difference (CFD) is a popular form of derivative trading and is different from an equity. CFD trading speculates on the rising or falling prices of fast-moving global financial markets (or instruments) such as shares, indices, commodities, currencies and treasuries. I personally have not ventured into CFD trading - a form of derivative trading - as I consider it a risky investment tool.
CFDs are risky investment instruments. Read up and gain confidence before investing in CFDs or equities.
How much is the typical commission fees for retail investors?
Commission fees vary based on the different asset classes. A typical stock trade should cost between S$4 to S$25, whereas management fees for funds like unit trusts and ETFs vary from 1% to 3%. Robo-investors are known for their low fees so you might want to explore those.
Have been putting my money into bonds and funds, pls let me know if I should continue to put more?
What is your current allocation between bonds and funds? The key question you need to ask yourself is this – what is your risk appetite? Depending on your view of the market outlook, you need to make your own informed decision.
What are the different regulations I am subjected to when investing in overseas markets (for stocks and options)? Would an ETF instrument allow me to bypass some of these regulations
US tax law requires the withholding of tax for non-US persons (non-resident aliens) at a rate of 30% on payments of US source stock dividends, short-term capital gain distributions and substitute payments in lieu. An US-listed ETF will not bypass these regulations, but ETFs listed in other markets like London (UCITS) will allow you to do so. DBS digiportfolio is made up of UCITS ETFs.
Given the current economic climate, what is the recommended asset allocation? Should we be overweight in safer assets like gold or Yen ETFs, or should we be entirely risk and hold cash?
Assuming you have idle cash and in the light of the current uncertain economic environment, adopt the dollar cost averaging approach. This means investing regularly into the same investments so that you lower the average cost of investing over time.
The asset allocation depends on your risk profile, your financial objectives and investing knowledge. Do your due diligence and have a diversified portfolio. Assuming you’re in your 20s and you have a long-term investment horizon, you can look at a more aggressive investment portfolio with a higher concentration of equities. This is because the long-term horizon will help you to ride out the market volatilities.
What are your views on FX trading? Should I dabble in the FX market?
Forex trading includes all aspects of buying, selling and exchanging currencies at current or determined prices. You need an in-depth understanding of currencies and the economies. If you have the time to monitor and assess the currency direction, can commit to keeping up with global economic developments, can deal with a fast-moving market and most importantly, you have a high risk appetite, then go for it.
Remember – forex trading is particularly risky since it usually involves a large amount to achieve a larger position in the market so that small movements in currency can translate into larger returns for you. But that also means you can incur much greater losses really fast if the forex market moves against you.
Can you handle it? If not, there are other investment products you may find more suitable.
One of Warren Buffet's investment philosophy is to be greedy when others are fearful. This was true in the aftermath of the COVID-19 pandemic in March/April. Since then, the market has been filled with optimism and has thus rebounded. Am I too late to the party; or should I look for plays in those industries that has yet to recover (e.g. Aviation/Hospitality)? What are some of the red flags I should be aware off if i decide to long the aviation/hospitality sector?
You’re not too late to the party, because time in the market is more important than timing the market. If you have the idle cash to start investing and have 3 – 6 months’ worth of emergency savings, start now. You are young and your long investment time horizon will enable you to take advantage of the power of compounding.
Also, look for sectors and investment themes that are resilient and have strong financials to ride the volatility and uncertainty. Next question below talks briefly about how you can start analysing companies, even those in the aviation/hospitality sector.
How should I analyse a company? I have heard from some of my friends that they have built entire financial models to identify the intrinsic value of the company while another group of my friends relies entirely on technical analysis. I am not sure if I should be a fundamentalist or chartist or a combination of both?!
Fundamentalist or chartist - there's no right or wrong answer. Learn both and see which one works better for you. My recommendation is to start analysing the company with the following:
Firstly, look at the annual report of a company. Analyse the strength of a company’s financials by looking at ratios such as Price to Earnings, Price to Book and Return on Equity.
Secondly, try to attend the company's AGM to assess the management team and to suss out any potential upcoming financial issues that it could be facing.
Thirdly, understand the sector that the company is operating in and assess its performance vis-a-vis its peers.
Credit Cards & Housing Loans
1. Are credit cards a friend or a foe? Should I be getting one right out of University? The rebates on some of these cards seems to save me quite a bit of money... What do you recommend?
Frenemy? Depends on your understanding and usage.
If you are unsure of your money management habits, it's prudent to use a debit card first. If most of your spending are consolidated with one bank, you can gauge your money management habits using your bank’s internet or mobile banking to find out what percentage your money inflows are being spent monthly and what is spent on.
When using credit cards, shop around for a card that is aligned to your lifestyle and spending habits, so as to gain the benefits fully. For example, if you spend mostly on everyday essentials, get a Card that gives you rebates on everyday spend. But if you are looking to chock up miles, look for Cards that give you miles that don’t expire so you can enjoy your miles when we can start travelling again. However, remember to pay your bills in full every month to avoid accumulating debt. One rule of thumb is to treat your Credit Card like a Debit Card, and not spend money that you do not have.
2. Would you encourage students to get a student credit card? Assuming that he/she has good control over their spending, has adequate insurance coverage and has set-up an emergency fund.
If you have a good control of your spending, getting a student credit card like the DBS Live Fresh Student Card (LFSC) can give you perks such as cashback on your expenditure. LFSC also gives you a cash limit of S$500, which helps you to get a leg up in learning how to manage credit while controlling your spend, before you move on to a full-fledged credit card with a higher credit limit. Track your spending with NAV Planner, set bill payment reminders for yourself and ensure you pay on time and pay fully. Doing these will also help in your credit rating, as it shows that you can be trusted to repay your loan.
While you think about whether you should get your first student credit card, your DBS Visa Debit Card also gives you up to 3% cashback on your spend, which is also very rewarding.
3. Should I take a loan with HDB or banks for my first BTO? I understand the HDB loan is a fixed rate loan while the bank loan is a floating rate loan.
You are right. HDB loans are fixed while bank loans are floating rate loans. However, another key difference is the amount of downpayment required.
If you’re a student without a lot of cashflow, a HDB loan gives you more flexibility and cashflow up front, because it require a 10% downpayment (5% when you successfully ballot and choose a flat and 5% after you collect your keys), compared to a heftier 25% required for bank loans. The option to refinance to lower rates is always possible if you decide to take an HDB loan initially.
Firstly, understand the different interest rates that you stand to enjoy from the different CPF accounts by visiting the CPF website. Secondly, learn how to optimise your CPF savings by understanding how the CPF schemes work. Tip: Consider topping up your CPF Special Accounts to the Full Retirement Sum and let the magic of compounding work over time and by updating your knowledge via the CPF website.
Find out more about the CPF Investment Account and Supplementary Retirement Scheme with DBS.
2. What are some benefits and disadvantages of voluntarily topping up my CPF? In theory, we still ultimately own the funds of CPF, but some elements of ownership are restricted.
The main advantage of topping up your CPF Special Account via the Retirement Sum Topping Up Scheme is to enjoy the power of compounding interest, resulting in a significant increase in your CPF savings over time. You also enjoy tax reliefs of up to S$14,000 each year! It might seem like a disadvantage in that you won’t be able to touch them now. But bear in mind that CPF savings are mainly meant for your retirement so you will have limited access to your CPF savings till you reach 55 and/or older. On the bright side, your “future you” will thank you for the discipline in growing your retirement savings early.
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