4 ways to start exploring the world of investing
Investing is like going on a trip. You decide where you want to be. You set a budget. You make a checklist of what you would want to do. Then you look at the resources you would need to make the trip happen. It takes time, planning, and of course, prudent use of money.
However, you do not need a lot to get started. In fact, you’d be surprised how little you need to get started to explore the world of investing. Here are four ways you can start investing at a low cost:
Putting together and managing your own portfolio is like taking complete control of your own vacation. You enjoy the freedom to chart your own path, although researching, planning, comparing and picking the right investments could take a lot of time.
This isn’t the only thing you’ll need to consider – like how your budget limits the places you can visit, your investing budget limits how much you can diversify your portfolio.
For instance, you can only purchase stocks in the Singapore Exchange in groups – called lots – of 100. If one lot of blue chip costs $10,000, a few of these lots could take up most of your budget. You will also need to consider the effort to access certain investments, such as US-based ones, that may require setting up special accounts or changing your trading account settings.
Whether your preference is skiing in Hokkaido or diving in the Maldives, you can easily find a tour package to make your trip come true.
Investing in ETFs and Unit Trusts is like joining such package tours. Similar to how tour guides lead tour groups, both ETFs and Unit Trusts are managed by professional managers who pool money from many investors, deploying it in a mix of stocks, bonds, and other assets. This makes them an affordable way to attain a measure of diversification, since you can start investing with as little as S$1,000.
However, ETFs and Unit Trusts are typically focused on specific markets or sectors, like how tour packages focus on specific regions. This leaves your investments open to risk. For instance, an ETF tracking the STI would comprise only stocks — exposing you to factors affecting all stocks. Globally, sociopolitical events impact the value of investments in different geographical regions. The Brexit turmoil, for instance, can drastically affect the performance of UK stocks. Notably, iShares MSCI United Kingdom ETF (EWU), the biggest UK-focused ETF available in the United States, saw massive loss of investors.
In addition, if you’re only going along for the ride, you won’t have a say over how your money is invested.
Just as you can book trips on apps, you can leave the creation and management of your investment portfolio to robo-advisors.
Typically, these automated investing systems will recommend you a pre-designed diversified portfolio that suits your risk profile. Next, the robo-advisors automatically buy the assets, manage your portfolio and even rebalance it by buying and selling assets to maintain the desired asset allocation ratio, such as a 60/40 mix of stocks and bonds.
Powered by algorithms, which are a set of rules, robo-advisors are designed to behave like human financial advisors, yet function with minimal human intervention. Notably, they operate according to algorithms that are created based on past events. While this makes them efficient performers, they are unable to anticipate and respond to unexpected events, unlike human advisors.
These days, with just an app, travellers can experience a foreign destination through the eyes of a local—without having an actual guide.
Hybrid advisors such as digiPortfolio offer a similarly unique experience in the world of investing. A recent development in the investing world, hybrid advisors are designed to give you the best of both robo-technology and human portfolio managers.
Skilled human advisors behind the scenes – not robots – make management decisions such as fund selection to create different pre-set portfolios for investors with different risk appetites.
Meanwhile, robo-technology drives speed, scale and efficiencies at lower costs to deliver greater value by doing the day-to-day tasks of buying and selling assets. This is why hybrid advisors are touted as the next generation of portfolio management solution.
Unlike robo-advisors which operate solely on algorithms, hybrid advisor like digiPortfolio combines human expertise with robo-technology to give you instant diversification. The advantage of human insight and intuition enables hybrid advisors to analyse current global developments, and anticipate how events may affect your portfolio, and respond accordingly. For instance, should another round of US-China tariff war resurge, hybrid advisors have the cognizance to rejig an investor’s portfolio to take advantage of opportunities in say, emerging market ETFs and currencies.
|Portfolio Manager||Hybrid Advisor||Robo-advisor|
|Cost||Min investment $250,000 - $500,000
Annual fee: 1% - 5% of total assets
|Min investment $1,000
Annual fee: 0.75% - 0.85%
|Min investment: $0 - $3000
Annual fee: 0.2 - 1%
|Who crafts my portfolio? Portfolio construction||Portfolios designed by financial advisors to suit your financial needs. E.g. estate planning||Pick from pre-set low- to high-risk portfolios crafted by financial advisors.||Pick from pre-set low- to high-risk portfolios crafted by robo-advisors|
|Who manages my portfolio?||Financial advisor||Analysis by financial advisor, transaction execution by algorithms||Automated portfolio management by robo-advisors using algorithms and pre-set rules|
There are indeed affordable ways to invest without breaking your bank. To put things in perspective, it takes as little as $1,000 to get an expertly managed global portfolio. All that remains is for you to take the first step to embark on your investment journey.