If you have been trawling the web for financial planning advice, chances are you’ve heard the phrase “buy term, invest the rest”. Now that you’ve gotten the first part settled by buying term insurance, you’re ready to embark on the second part – investing.
But where should you begin as a new investor?
Decide if you are ready to invest
Investing is not for everyone. Yes, you read that right. While touted as the most crucial step in growing your wealth, investing should be done only when you are ready to do so.
For instance, is it really wise to start investing if you are working two jobs and struggling to pay off your bills? Or what if you have outstanding credit card loans to pay off?
#TiqOurWord Investing and saving are two key components in the wealth building journey. Find out how they differ and which you should focus on today.
Before you begin investing, always ensure that you:
Have spare cash
Always ensure that you have your basic needs covered, which includes having life insurance coverage and setting aside an emergency fund that can sustain at least 3 to 6 months of your daily expenses. Invest only when you have excess funds that you can afford to lose.
Are not bogged down by high interest debts
As adults, it is common to have liabilities (home loans, anyone?) and that is perfectly fine. Instead of that, we are referring to credit card debt or high interest loans which can snowball quickly and become debilitating. Always pay those off first and ensure you have savings before thinking about investing.
And if you’re thinking of borrowing money to invest, don’t. Investments come with risks and you could end up losing everything to be left only with debt.
Investing is part of a long term strategy and the more time you have for growing your investment, the more you receive thanks to the effect of compounding.Once you’ve checked off the conditions above, there’s nothing really stopping you from taking that first step, which is to decide what kind of investor you would like to be.
Define your investment strategy
There are many different approaches to investing and there is no single best way of doing so, because you should invest according to your own unique needs and preferences.
For that reason, there are numerous investment instruments available in the market – each with their own set of qualities – catering to investors with different risk appetites and objectives. The mix that you eventually decide on should be in line with your investment strategy.
Some common investment instruments include
Also known as shares or equities, purchasing this allows investors to become shareholders of a company and profit in its growth – either through dividends, or capital gains when they manage to sell their shares at a higher value than when they first got it for.
This instrument offers potentially high returns but comes with high risks as well, and requires the investor to be savvy in evaluating a company’s performance and the value of its stock.
- Exchange Traded Fund (ETF)
Similar to stocks, ETFs are investment funds that are listed and traded on a stock exchange. The difference is that money is pooled from multiple investors to be invested by ETF managers, and this allows investors to diversify their portfolio by gaining exposure to an index without having to purchase individual stocks.
As compared to actively managed funds like Unit Trusts, ETFs tend to have lower management fees. They are also a good way of gaining exposure in a variety of markets or asset classes, which may sometimes be inaccessible to individuals. Despite its advantages, returns are not guaranteed, making this a medium-risk option.
#TiqOurWord Unsure of which ETFs to invest in? Robo-advisors can be a good place to start as they take the fuss out of investing by letting you choose from portfolios curated to different risk profiles.
- Real Estate Investment Trust (REITs)
A high risk option, REITs are essentially a collective investment scheme that pools your money with other investors’ to invest in a multi-property portfolio.
This comprises real estate assets that generate income, such as offices, shopping malls, hotels or serviced apartments. The revenue (mostly from rental income) is then distributed at regular intervals after accounting for the relevant management fees.
Due to the diversification it offers, REITs are less risky and more affordable as compared to investing directly in a property. They are also more liquid, as they are listed on the stock exchange and can be invested in and sold off the same way as stocks.
Bonds are debt instruments that companies and governments issue to raise funds, by borrowing money from investors. A common example is Singapore Savings Bond.
A low risk and highly liquid instrument, bonds provide returns through the form of interest income – also known as coupon – or capital gains (when bonds can be sold at a higher price than when it was purchased).
- Regular Shares Saving Plans (RSSP)
This is an investment plan where the investor puts in a small but fixed amount every month towards a particular investment product, such as stocks, ETFs or REITs.
It is a medium-risk option that leverages on the Dollar Cost Average (DCA) principle to help investors gain value over a long investment horizon.
ILPs are a hybrid product that combines both insurance and investment. The premiums paid are invested into sub-funds of your choice, and you get to decide how much of it goes into protection coverage or investment. For instance, if you want more investment returns, you can lower the protection component to the minimum.
An interesting thing to note is that unlike other investment instruments, ILPs will cover you (and your loved ones) with a payout in the event of your death, even if the policy isn’t doing well.
Although returns are non-guaranteed, your investment will be managed by professional fund managers who share the same objectives of wanting the funds to perform well, making this a medium-risk option.
Ultimately, what you choose to invest in boils down to your risk appetite and preferred investment approach.
For instance, someone who is self-employed or has multiple obligations may choose a more cautious approach and invest more in safer options like bonds or even insurance savings plans rather than concentrating on stocks, which can be volatile.
However, do note that the lower the risks, the lower the potential returns as well.
#TiqOurWord For the risk-averse, some insurance savings plans are a safe (read: capital-guaranteed) and reliable way to grow your money while beating inflation.
Stay the course
Investing is a long term journey and the best results are often seen by those who commit to their investments and put in consistent efforts to build their portfolios.
For beginners, this may seem daunting but it isn’t necessarily so once you get the hang of it. Start small, learn along the way; and even if you make some mistakes, that’s alright. Because even then, you’ll be closer to your goal as opposed to not starting anything at all.
Information is accurate as at 21 April 2021. This policy is underwritten by Etiqa Insurance Pte. Ltd. (Company Reg. No. 201331905K). Protected up to specified limits by SDIC. As buying a life insurance policy is a long-term commitment, an early termination of the policy usually involves high costs and the surrender value, if any, that is payable to you may be zero or less than the total premiums paid. You should seek advice from a financial adviser before deciding to purchase the policy. If you choose not to seek advice, you should consider if the policy is suitable for you. This advertisement has not been reviewed by the Monetary Authority of Singapore.
Tiq by Etiqa Insurance Pte. Ltd.
A digital insurance channel that embraces changes to provide simple and convenient protection, Tiq’s mission is to make insurance transparent and accessible, inspiring you today to be prepared for life’s surprises and inevitabilities, while empowering you to “Live Unlimited” and take control of your tomorrow.
With a shared vision to change the paradigm of insurance and reshape customer experience, Etiqa created the strong foundation for Tiq. Because life never stops changing, Etiqa never stops progressing. A licensed life and general insurance company registered in the Republic of Singapore and regulated by the Monetary Authority of Singapore, Etiqa is governed by the Insurance Act and has been providing insurance solutions since 1961. It is 69% owned by Maybank, Southeast Asia’s fourth largest banking group, with more than 22 million customers in 20 countries; and 31% owned by Ageas, an international insurance group with 33 million customers across 16 countries.
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