How to Invest Wisely in Singapore: Essential tips for Beginners

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Yannie Woon

Updated on: January 10, 2023

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How to Invest Wisely in Singapore: Essential Tips for Beginners

Investing is an important part of personal finance and a way to build your wealth over time. Still, it can be overwhelming if you’re just starting out.

If you want to start investing in Singapore, here is a guide of essential tips for beginners like yourself to get you started.

We will analyse different instruments, calculating your potential return on investment at every step. We will also build a simple sample of an investment portfolio to help you understand your possible next steps.

Read along and brace yourself for the Math.

Table of Contents

Know The Different Types Of Investments

Before you start investing, it is important to understand the different types of investments available in Singapore.

This can help you decide which suits your investment goals best.

Stocks

Stocks are shares of ownership in a company. When you buy stocks, you are purchasing a piece of the company and therefore having partial ownership. As the stock price rises, your returns increase as well.

Stocks have the highest risk but can also bring you the most gains over the long term. That is up to 7% per month for the best stocks in Singapore.

Let’s do some math:

The average stock market return is:

  • 14.8%: For ten years
  • 9.9%: For 30 years
  • 9.4%: For 50 years

Results:

Assume you start investing in the stock market today. Your initial investment is $100, and you keep that up for ten years. This investment will be worth $27,625:

  • $12,000 from your contributions
  • $15,625 from interest

Assume you go in with an initial investment of $1,000 followed by $100 monthly contributions. That means $31,543 after ten years:

  • $13,000 from your contributions
  • $18,543 from the accumulated interest

Bonds

Bonds are another type of investment. When you buy a bond, you essentially lend money to the company or government that issued the bond. In return for your loan, you will receive regular interest payments as well as the principal back at maturity.

Bonds are much safer than stocks. As such, they bring less profit – around 2-3% return on investment over the long run.

The current Singapore Bond SBFEB23 GX23020X has an average return of 2.97% over ten years.

Result: An $1,000 investment in bonds now will garner $1,345 in ten years.

That means bonds are best for larger amounts.

Mutual Funds

Mutual funds are a form of investment that pools money from multiple investors and uses the fund to invest in various stocks, bonds, and other securities. This way, you can diversify your investments with relatively low risk.

You can invest in a mutual fund through your bank and gain a decent return of 6-7%.

Take the example of Fidelity Funds – America Fund SR-ACC-USD. This fund has a 7.03% average 3-year return, with a 0.00% sales charge.

Result: If you put in just 100/month for ten years, your investment will be worth $17,539 in 2033.

Exchange Traded Funds

Exchange Traded Funds (ETFs) allow investors to purchase a package of securities at once. This means that you will be exposed to a diversified portfolio of stocks, bonds, and other securities at once. ETFs typically have a lower fee than mutual funds and offer more flexibility.

There are different types of ETFs.

Some track a specific index, such as the MSCI World or the Nasdaq Composite. In contrast, others are actively managed by professionals.

Some give you a monthly payment called dividends, while others allow you to reinvest those dividends back into your portfolio.

Pro tip: The ETF market is worth $2.7 trillion in the USA.

Results: The S&P 500 has produced returns of 8.13% since 2002. Therefore, an ETF that mimics this index would bring you $18,653 for monthly contributions of $100 over ten years.

Real Estate

Real estate is a great way to invest your money and build wealth. You can buy residential or commercial buildings, land, or vacation homes.

When you invest in real estate, you are investing in the property’s potential to increase its value over time. As the market trends upward, so does the value of your investment.

Pro tip: Real Estate Investment Trusts (REITs) are a good way to invest in real estate if you want the profit without the hassle.

REITs represent a basket of properties and are traded on the stock market. They typically pay out regular dividends, making them attractive for income investors.

Besides, REITs are legally obligated to share 90% of their earnings with their investors.

Results: Many Singapore REITs reach up to 6% in interest. So, investing $10,000 in those REITs brings you $600 in dividends for that year.

Savings Accounts

Savings accounts are not risky and offer you access to money whenever you need it. However, savings accounts in Singapore provide a small profit.

At the time of this writing, the interest rates for savings accounts in Singapore vary between 0.9% (DBS) and 3.85% (UOB One).

Results: For $100 and a 10-year investment tenure, that means:

  • $12,661 at DBS, with just $561 interest earned
  • $14,756 at UOB, with $2,656 total interest earned

Fixed Deposits

Fixed deposits are also safe and give you quick access to your cash. Unlike savings accounts, fixed deposits have higher interest rates, making them better investments over the long term.

The best fixed deposit rates vary between 3.20% and 4.20% at the time of this writing across banks in Singapore.

Note: This rate is on par with many ETFs and mutual funds. However, banks will offer a considerably lower interest rate after the inflation settles.

Besides, you cannot top off your fixed deposits monthly. You can only open a new one once you’ve saved more money.

Warning: Once you place your money in such a deposit, you must leave it until it reaches maturity. Otherwise, you forfeit the interest.

Results: For a $1,000 investment and a 1-year tenure, you can gain $1042. Reinvesting that money yearly is key to success.

Make A Plan And Set Investment Goals

Investing entails having a plan based on specific investment goals.

You need to know what you want to achieve with your investments, whether it is to save for retirement, buy a house or build wealth.

Once you have identified your goals, decide on how much you want to invest and the timeline that best suits your financial needs.

Here’s what a potential plan looks like, assuming you earn $5,000/month and can save $1,000/month.

1. Build An Emergency Fund ($1,000/Month Until You Build It): Best For Security

An emergency fund represents money you save for dire circumstances like losing your job or a serious medical emergency.

That’s the first type of investment you must focus on before choosing any other sort of instrument.

The emergency fund must have at least six to 12 times your monthly income. Assuming you earn $5,000 per month, you need at least $30,000 in this fund.

To get this money, you can:

  • Obtain a personal loan: For a three-year tenure, you will have:
    • $1.176.99 monthly installment at a moneylender in Singapore
1 1

Source

  • $930.33 monthly installment at a bank in Singapore
2 2

Source

*Do note that the interest rate and processing fee offered to you may differ slightly from the published rate, as the actual rate is based on your personal credit profile or your repayment ability

  • Save as much as you can: Assuming you can save $1,000 from your earnings each month in a savings account with 3% per year. You will need 2.5 years to reach the entire sum.

Remember: You need to have access to liquid funds in case of an emergency. So, keep these funds either in a fixed deposit or savings account.

And don’t touch this money unless you are in a real emergency.

2. Build A Fund For Large Recurrent Expenses ($500/Month): Best For Life’s Pleasures

Home improvements, buying a new car, and vacations can all be included in this fund. Again, you need cash at hand for these expenses.

So, out of the $1,000/month, put $500 in this account. You can either open a savings account or a fixed deposit.

Here are some tips:

  • Don’t dip into this fund unless you’re doing it for the specific goal you created it for. So, if you’ve built this fund for that holiday to Paris, don’t use it for new clothes. If you’ve built it for an expensive Louis Vuitton, don’t use it for dining out.
  • Replenish the fund each time you take money from it. You will need this type of money for other purchases in the future.

3. Build A Specific Investment Portfolio ($500/Month): Best For Building Wealth

This investment portfolio depends heavily on your risk appetite.

  • Stocks bring the highest returns, especially if you do short-term trading. However, you must learn financial analysis and choose wisely before buying a stock. Otherwise, you can lose your hard-earned money in a week.
  • ETFs bring a good moderate profit in the long run. The easiest ETFs to buy follow a specific index, like S&P 500, NASDAQ, or MSCI World. Just make sure you have ownership

For example, SPDR Strait Times Index ETF brought the highest return in Singapore, at 27.69% average interest rate for the past five years.

What does that mean?

$500 monthly in this ETF for five years would have brought you $59,878.63:

  • $30,000 from your contributions
  • $29,878.63 from compound interest

Understand The Risks And Benefits Of Investing

As with any investment, there are always risks involved. Before investing your money, be sure to understand the potential risks and benefits associated with each type of investment so that you can make informed decisions.

It’s also crucial to do your research and be aware of any fees and taxes related to different types of investments.

Remember: The examples we’ve given so far are just that – examples. Each person has different needs, expenses, and earnings. Be sure to build a personalised strategy according to those factors.

Building a budget and being mindful of your expenses is key to building wealth. So, before you start investing, take rein over preexisting debt and chaotic expense patterns.

Loanstreet can help with quotes across money lenders and banks in Singapore.

A wise loan now can start your emergency account and your journey in the world of investments.

Consider that the MSCI world index returned an average annual return of 10.68% between December 1978 and December 2022. So, a $20,000 investment in this index for 10 years, with no additional installments, can result in $55,172.35.

If the index follows the same trend, of course.

By comparison, you can repay a $20,000 loan in five years at a 7% interest rate and $396.02. The total loan cost would be $23,761.44.

So, subtracting the $3,761.44 interest from your $55,172.35 result entails a return of $51,413.76.

Use Loanstreet personal loan calculator to find your best terms.

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