Sunday, September 2, 2018

The Layman's Guide to Start Investing in Singapore

This will be my multi-part series on starting on an investing journey in Singapore. I will go through a few common concepts on how to start investing in Singapore,  and is meant to help those who have 0 experience in investing take their first step.

Purpose of the Post

On talking to many of my friends, colleagues, and relatives, I have realized a common statement mentioned. "I want to invest, but I do not know where to start." 

Many are scared off by the prospects of risks, and heard the tales of people who invested in stocks and lost hundreds of thousands of dollars (many, by using leveraging and contra trading, which I am strongly against), or honestly are just plain overwhelmed by the barrage of information thrown at them, from various acronyms like TA or FA or CDP, limit buy market buy etc etc. They end up stuck in their confusion and think to start another day.  For this post, and a few going further on, I would want to simplify things and highlight the summary of how I started my first investment, from a uniquely Singaporean perspective. I will highlight the step by step of actually MAKING a trade, before I talk further about actually choosing the right stock in a future guide.

Step 1: Starting a Stock Account
Let's start with the basics. You can easily set up a stock account with most of the banks in Singapore. For myself, I started with an OCBC Securities account because it allowed me to invest before I was 21 (It required me to have $5000 in the bank as deposit, before I could invest any money thereafter) . After I reached 21, I changed to a Standard Chartered Online Trading Account, which has one of the lowest commissions in Singapore, and yet still has access to many different stock markets across the world. Take note that SC trading account is a NON-CDP account, and will meant that you might miss the AGMs of the companies that you bought, and other terms. Still worth it in my opinion.

In order to start an account, all you need to do is go to the nearest bank near your house and ask to set it up. They will usually require you to have a savings account (in the case of SC, a minimum $1000 in their eSavers account), and then you can open your account with the brokerage. They will also ask you what exchanges you will be interested in opening your account to. I started with just HK and SG, but moved on to include the US, UK and etc so as to increase exposure to the foreign companies I found interesting.

The SC account is pretty good for Singaporean stocks, with relatively cheap commission rates (S$10 per transaction as compared to $25 for most other local banks), but I have been looking at Interactive Brokers as an alternative, due to their better foreign exchange rates (heard there was no SG stocks there though). IB, however, requires a minimum deposit of USD 10000 (or SGD 14000) to start a bank account, and requires regular transactions, which might not be what I am looking at now, but definitely in the next few years.

Step 2: Making Your First Trade

In order to make your trade, all you need to do is wait till all the documentations have been sent to your house/email. I believe it took me around 2-3 weeks before everything was ready for me to invest.

In the case of SC (considering it's the one I use the most), you will have to transfer the appropriate amount of money into the currency trading account that is the same as the market you are buying into. 

Clicking on online trading will bring you to another platform, where you can just enter the counter code (make sure to include the search for all the stock exchanges!) and select the purchase amount, order price, order quantity and etc. Selecting the order quantity will then show the buy order price of the stock. Here, you can choose between a MARKET or LIMIT order type, where market is essentially choosing to buy the stock at ANY price it is at right now, while limit allows you to set the price, but could means you could fail to have your stock purchased by the same day (limit orders expire at the end of the day).

ETFs

ETFs can also be bought from the SC account, including the NIKKO AM ETF (following SGX) or the Vanguard S&P 500 ETF. Those who believe ( and rightly so) in just purchasing ETFs can look into these, with a fair warning on the S&P 500 ETF subject to US withholding tax (tax on dividends).
Your returns may not be as good as an US citizen. I will update more about this, as I seek to convert maybe 20% of my investments into an ETF.

Step 3: Choosing your investments

There are a hundred and one ways to invest the money you have and making them work for you. For myself, I choose to split my investments/savings into 4 different aspects : liquid savings, insurance, stock and other adhoc investments.

For my liquid savings, I chose to start a DBS Multiplier account to throw my money into on a day to day basis. The interest rate on a DBS Multiplier account seems to be the best I have seen around so far, especially considering that in orde to get the best rate, that I would not need to actually spend much on a credit card. I compared that to OCBC 360, which required a slightly higher amount of spending on credit card ($500 per month), which seemed to be counter-intuitive regarding having to spend more to *save* more.

For my insurance, I personally do not believe in financial products from any of the insurance companies, because I do feel that many of them are not worthwhile to put ANY money into. However, I do appreciate the need to cover my downside, in the scenario that I encounter any sickness or illnesses. I utilize a basic hospitalization insurance and a Prudential multiplier flex to cover critical illnesses and death. I would argue the latter insurance is more useful when you have a family going, which at my current age, is not necessary yet, but I would want to have some coverage in the case I am bedridden for a few years due to any medical problems.

For equities, I divide my portfolio into an array of stocks, some dividend stocks, some REITs, and some undervalued but non-dividend giving stocks. I will talk more about these in the coming posts.

My other ad-hoc investments include a small amount in crytocurrency, and other of my side projects :) The truth is that since I have just begun my journey not too long ago is that I would want to purchase property, but am unable to with the war chest I have now.

I know that there are other investment instruments, including options, bonds, and even loans through MoolahSense, but I personally feel my favorite instrument so far is that of stocks. I would argue that bonds currently are not worth it, especially at my age. I may switch to some more bonds, as per Benjamin Graham's advice, going further into my investment journey.

Step 4: Study, Study, Study

I placed this at Step 4 because I know that having the first three steps done will make all the administrative issues to be cleared and done. The non-stop studying on investments, the way to choose a proper stock and etc, starts here. As per advice given by Benjamin Graham, and Warren Buffett, I would recommend that anyone who does not wish to put in a larger amount of time into investing just set aside an amount of money and put it into the ETFs mentioned in Step 3. One can still get a reasonable return for your money and have an earlier retirement, just by putting your money in sensibly.

Many people would recommend saving at least 10% of your salary into savings, but I would recommend a much larger number than that in Singapore. I personally am looking into 10% into savings and 30% into investments. I believe it is necessary to consider CPF outside of your savings, as CPF can often be wiped out by purchasing a HDB flat. Do not just depend on CPF. It is the bare minimum. 

I am also building towards recommended emergency money of at least 6 months worth of salary.

Last but not least, I would want to convert readers to thinking more of the power of saving and investment, through this simple but succinct video explaining why we should do it. 

https://www.youtube.com/watch?v=Oi9cq7tXkmg

"Wealth is created through self sacrifice, and taking risks."

Take care, everyone!

(The author of the blog is not affliated to any institutions or companies named above.)



2 comments:

  1. Wise words and a new blog. Keep up the good work.

    ReplyDelete
  2. Hi Fellow investor,

    Don't mind me asking, what is your package premium and coverage under Prudential Multiplier Flex?
    Thanks for sharing.

    ReplyDelete

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