Various investment products for different investment styles

All of us have different personalities. Some like things to be fast, others like it to be slow. Some are patient while some are not. The good news is there are different investments that we can make to suit our personality. It is important to find out your investment style and practice it so that you can be successful in it.

1) If you're a super risk adverse type of person who doesn't like risk, you can invest in:

Fixed Deposits
The returns in fixed deposits are generally low now due to the low interest rates environment. They are capital guaranteed and you will get your capital back with interest at the end of the fixed period.


2) If you're a risk adverse person but wants higher returns, you can invest in:

Bonds
Bonds are generally safe assets where you can get your capital guaranteed back unless the issuer of the bond defaults on its debt. However, make sure you know how to value bonds and don't buy when the bond is overvalued. Know the difference between corporate and government bonds.


3) If you are less risk adverse and want higher returns but do not have time to monitor the market, you can invest in:

Index ETFs
I've wrote about investing in ETFs in my previous blog posts. You can read it here:

Investing Basics - Low Cost Index Fund investing (Passive Investing)

Managed Funds or Unit Trusts
These are funds that you can invest in which are actively managed by a professional fund manager. This comes at a fee as most fund houses charge relatively high sales charges and even platform fees.


4) If you want to take control of your own investments and are somewhat patient, you can invest in:

Stocks
When you buy a stock, you're a shareholder of the company which means you're actually one of the owners in that company now. Buying stocks requires knowledge and monitoring of the market. Most people with a full time job will still be able to invest in stocks. Investors do not have to monitor the market all the time as compared to traders. Most investors buy stocks when they are undervalued or they buy for its dividends which provides a stream of passive income. Investing in stocks requires you to know how to interpret financial statements and also know the value of the company relative to the stock price. Investing in stocks sometimes requires patience to wait for the stock price to rise relative to its value.


5) If you love risk and want things to be fast, you can be a trader.

A trader can trade in the foreign exchange market, the stock market and the commodities market. They can also use derivative products like options, futures or CFDs. Trading requires you to monitor the market all the time and in essence, it is a full time job. Most people who already have a full time job cannot be a trader. Do note that trading is a very hard profession and very few people succeed in it. It requires you to control your emotions. It is more of a psychological game.


I started out learning how to trade and traded a few times. With a full time job, it is almost impossible to trade. Now i only trade once in awhile when there is a clear opportunity. Otherwise, my investment approach is more of finding undervalued stocks to invest in. This suits my style and my personality. I would rather take control of my own investment as i like and have an interest for investing. It has become part of my life now.

As we can see, there are many investment products suited for different styles. It is up to you on which ones you want to choose. As a rule of thumb, always invest for returns higher than or equal to the inflation rate. The purpose of investing is to grow your wealth. You do not want inflation to devalue the cash you have over time. If your investment return is lower than the inflation rate, your investment is actually worthless.

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Investing basics - How do I start investing?

Investing Basics - Low Cost Index Fund investing (Passive Investing)

My views on the new POSB Invest-Saver

Read the news in the morning and this new product jointly launched by SGX and POSB caught my attention.  I have just blogged about investing in ETFs and now there is a new product in the market. Have just checked from POSB website and I will summarise on the characteristics of this new product.

This POSB invest saver lets you invest in an index ETF from as low as $100/month. The index ETF used is the NIkko AM Singapore STI Exchange Traded Fund. This ETF tracks the Singapore Straits Times index similiar to SPDR STI ETF. In my previous post on "investing basics - Low cost index fund investing (passive investing)", I wrote about investing in SPDR STI ETF using philip securities share builder plan. You can read about it and compare against this POSB product.

Benefits of POSB Invest-Saver

1) Invest from as low as $100
This is beneficial for those who do not have a huge capital to start with

2) Low transaction cost
Sales charge is fixed at 1% per transaction. If you invest $100, sales charge is $1.

3) Dollar cost averaging
By buying every month, you can ride out the gyrations of the market. No market timing is needed. As an index fund goes up in the long run, the longer you invest in it, the smoother the returns

4) Easy to apply through ATM machine or online at POSB website.

No brokers involved and no complicated forms to fill.

In channel news asia, it was written that we can expect a return of 2-3% annually. I've checked on the fund factsheet of Nikko STI ETF. The 3 year annualised return for this fund was 5-6%. This fund also gives dividends of about 1-2% annually. The dividends payout by the fund will be credited into your designated debiting account.  If the returns is just 2-3% annually, it would not be that attractive to me as it barely covers the inflation rate in Singapore. I would think that the returns should be more than 3% judging from the funds performance

This product is beneficial to those who want to invest but do not have the capital or knowledge to do so. A return of 2-3% is better than putting it in the bank and the best thing is you can withdraw your money anytime. It is stated that no fees will be incurred when you sell your unit. This is subjected to change as indicated on POSB website. However in any investment, there are still risks involved. The returns are not guaranteed and you may still lose money in the short run. In the long run, investments generally return profits.

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2. Investing Basics - How do I start investing?
3. How to pick stocks (Part 1) - Economic Moats

Investing Basics - Low Cost Index Fund investing (Passive Investing)

I've heard of this term called passive investing and think that it is suitable for those who are starting out in investing or those with little knowledge on investment. In essence, this method works by you putting a fixed amount into an index fund and let the fund grow over time.

A recommended fund if you're investing in Singapore is the STI ETF. You can buy this ETF from SGX directly. However, currently the minimum investment for this ETF is $3000+. Most young investors who just started working will find it hard to invest $3000+ at a time. They will not have enough money to see the effects of dollar cost averaging which is investing on a regular basis.

The solution is to start a share builders plan from phillip securities. I've attended talks on this share builders plan and have also talked to a licensed broker from philip securities to understand on how this plan works.

Do note that an ETF is a listed as a specified investment product(SIP) and MAS requires all individuals to have certain knowledge before you can invest in SIP. If you do not have finance background, you can take a knowledge assessment by SGX and once you pass the requirements, you can start investing in it.


How the share builders plan works? 
The minimum sum to invest in is $200 every month. You can decide on a variety of counters to invest in. This includes blue chips like Capitaland, Capitamall Trust, DBS, Keppel Corp, OCBC, NOL, SIA, SGX, Singtel, SPH, ST Engineering, UOB etc. And not forgetting the STI ETF too. You can choose to invest in one counter only of you can invest in two or more counters. You can decide to allocate $200 every month to STI ETF and $100 every month to DBS. Total invested amount will be $300 per month in 2 different counters.

Charges
The charges are simple to understand. Fees of $6.42 if you invest less than $1000 per month in <=2 counters. Fees of $10.70 or 0.2%(whichever is higher) if you invest more than $1000 per month in more than 2 counters. So for example if you invest $200 per month in STI ETF, the fee will be fixed at $6.42 every month. A point to note is that if you just invest $200 per month, the fees/charges is already 3.21% which is not recommended. When investing, i always try to keep my fees as low as possible, best to be less than 1%. This is because fees can reduce your investment significantly overtime if kept at a high %. Therefore, the optimal investment amount should be more than $600 per month. This amounts to a fee of 1% which is manageable.


Why invest in STI ETF?
Or the question should be why invest in an index fund? The reason is an index fund offers a good diversification of stocks in that fund itself. For example, the STI, which is the straits times index, comprises of the 30 largest companies listed in the Singapore stock market. If you invest in an index fund, you do not have to pick stocks individually. The best thing is component stocks in an index is changed periodically. Bad companies are removed and replaced with another company. Index all over the world has been rising for the past 50 years. An exceptional case is Japan which has seen its Nikkei index fallen in the past 10 years. Japan has been in a deflationary economy which is a reason for its sluggish economy and stock market. Elsewhere in the world, we're still seeing growth in the past 10 years.

Performance of the STI ETF 
So how has the STI ETF performed over the past 10 years. From its fund factsheet, STI ETF has returned an annualized return of 8.04%. This is the return compounded over 10 years. Which means your money invested at the start has already doubled in the 10 years. STI does give dividends also. Adding the dividends, annualized return is about 11.31%. With performance like this, i'm sure this index funds has beaten most of the other funds out there in the market. You just have to invest monthly and let it compound over 10 years. No stock picking involved and no market timing needed. This is dollar cost averaging working in its power.


Will the Index continue to rise in the future? 
The stock market goes through cycles. There are ups and downs but overall the stock market rises in the long run. This coincides with the economy of the country. Unless we have a situation where a country like Japan goes through a deflationary cycle for a long time, then the stock market will not rise.

Conclusion
Passive investing is suitable for people who want to invest but do not know how to pick stocks. If you know how to pick stocks, your investment returns can be much higher. There are many ways to invest. You can be a value investor where you buy great companies at undervalued prices or you can be a passive investor where you invest regularly in an index fund. Its up to us to decide which one we want to be and to measure our own risk appetite. Start investing today to maximize the value of your money.

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Investing basics - How do I start investing?

My views on the new POSB Invest-Saver

Investing basics - How do I start investing?

Every person i meet who has no prior exposure to the investing world will ask me this question:

How do I start investing?


This is a very general question but its also a question that makes me ponder a lot on it. I ask myself back:

How did i even start this investing journey?
You can read my About Me page by clicking on the tab above to read how i started my journey.

In this blog post, i hope to answer this question in a simple and clear way so that readers can understand.

1) To start investing, you must have savings. If you do not have the habit of saving, start by putting aside a monthly amount to save. A good start will be 10% of your monthly salary or allowance.

2) Sign up for a brokerage account.  I realised many people do not know where or how to sign up for a trading account. A trading account allows you to buy shares of companies in the stock market.

A few brokerage that you can open an account with:

http://www.citibank.com.sg/gcb/investments/citi_brokerage.htm?eOfferCode=SGIVBRPWAL
http://www.limtan.com.sg/
http://www.phillip.com.sg/
http://www.dbsvonline.com/English/index.asp

I personally use citibank brokerage and limtan securities. You can click on the link to check out the commission charges of each one. Opening an account is free. You can sign up for it anytime.

3) Attend seminars or read books on investment.
There are free investment seminars out there which you can attend. One good provider is Singapore Exchange(SGX). Yes, in Singapore, the stock exchange actually organises free beginner investing lessons for the public.
You can visit their website here: http://www.sgxacademy.com/index.php?option=com_sgx&task=listing&Itemid=4 (Note: Some courses are free while some require a fee)

You can also read up websites that the singapore government links with to improve the financial literacy of Singapore.
Some websites recommended are:
http://www.moneysense.gov.sg/
http://www.moneysmart.sg/
http://www.cpf.gov.sg/imsavvy/default.asp


These are the basic steps to get you started. Some of the websites recommended above not only teach you about investment but also on personal finance, ie taking up a housing loan.

Lastly, do follow this blog as i'll be sharing finance tips and investment analysis from time to time. You can follow by entering your email address at the top right of this page. Do comment below if you got any questions or just general comments are welcomed.

Thanks and wishing you all the best in your journey towards financial freedom.

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