Put your foot on the investment pedal
Every lap of the race is important. Every second gained contributes to your final timing. Get a jump-start on your investment journey with these tips on allocating your salary or bonus.
Here are a few simple points to follow:
Here’s a good way to gear up – start with the 50-20-30 Budgeting Rule. Spend 50% of your income on necessities, invest and save 20%, and use the remaining 30% for other things you want.
Your home loan instalment, food expenses, and utility bills would fall into the 50% category. Another 20% of your salary could be diverted to savings or invested to meet your long-term goals. Holidays, going out on weekends, and other types of non-essential spending would take up 30%.
Of course, you can accelerate or put a brake on the 50-20-30 rule to suit your circumstances. Many well-paid professionals save far more than 20% of their income.
Watch your speed. The key to successful investing is in understanding and managing these risks appropriately. It is important to consider how much risk you are willing to take, how prepared you are to lose part or all of your capital, and whether you have the ability to make good any losses incurred.
The first lap is just as important as the last. When setting aside an adequate amount of money for your retirement or for your children’s education, you should begin the investment process well in advance. This will give the advantage of the power of compounding interest and allow your money to grow much faster.
You can consider options various endowment and insurance options. Investing a predetermined amount every month will allow you to accumulate a significant sum over a period of time. It gives you a gain on every lap.
Endowment and Insurance Options:
Education Endowment Plan: ManuEdu First
Endowment Plan: ManuFlexi Growth
Retirement Plan: RetireReady Plus
Ideally, you should invest in a mix of stocks, bonds, and property, and remember to keep enough cash available to take advantage of new market opportunities. Have enough fuel to accelerate at the right time.
Not every lap is the same. Take stock of your position and adjust your speed accordingly. If you want to maximise your returns while keeping your capital safe, it is important to diversify your portfolio. Say, you decide to maintain 40% of your investments in shares and 60% in fixed-income securities. Over a period of time, the ratio of your holding may change due to market forces shifting the weights of the allocation with regards to your investment portfolio.
In 2017, Singapore’s Straits Times Index (STI) gained about 17%. If you had invested in an ETF linked to the STI, it is likely that your portfolio would need to be rebalanced. You may consider liquidating some part of your equity-linked holdings and perhaps invest the proceeds in bonds.
Do you have enough money in your reserve tank to cover a large unexpected expense like a job loss or a medical emergency? Sometimes, we need a pit stop but emergency funds need not only be cash.
Consider investing in money market instruments or in short-term bank deposits. Your choice should allow you to be able to access or liquidate these funds at short notice.
Every second gained contributes to your final timing, so get a jump on each lap. If you have decided to invest, say, 20% of your monthly salary, you should transfer the money at the beginning of the month. Waiting till you have met all your other expenses is a mistake. This could lead to a shortfall in your investment target.