If you’re thinking of investing, but phrases like “CDP account” and “risk tolerance” fly right over your head, read on to figure out how to kick-start your investment plan.
Investing your cash may sound cool and sophisticated, but let’s be honest, most of us don’t even know where to start. We approached the experts from Institute for Financial Literacy (IFL) to answer some of our burning questions about investing.
When should you start?
It’s important to make sure you have three to six months’ worth of your current pay or monthly expenses saved before you even think about investing. You should also protect yourself with life and health insurance plans first because they ensure you have a guaranteed sum when unexpected incidents like critical illnesses happen.
How much money should you set aside for investments?
It’s wise to save at least 10 percent of your take-home pay. From this amount, think about how much of it you want to use on investments.
Is it a must to invest?
It depends on your personal financial goals. Some people may set goals of living in a mansion while others are fine with a cosy HDB flat. “If, after taking inflation into consideration, you can still save enough to achieve your goal, there is no need for that extra risk [that comes with investing],” said a spokesperson from IFL.
What should you do before you invest?
Educate yourself. It’s not enough to just do research online or speak to your friends and family. Go one step further by joining courses that are run by neutral organisations like the IFL, SGX Academy or the Securities Investors Association (Singapore).
What is the first step?
To buy and sell stocks or bonds, you need to open an account with the Central Depository (CDP). It’s free and you can create an account through a broker or directly with the CDP.
What kind of investments should a beginner get?
Firstly, figure out your risk tolerance. Your financial advisor should go through a risk tolerance questionnaire with you to see how much you can afford to lose. According to the IFL, it’s wise for beginners to diversify risks by buying from a basket of companies instead of focusing on one. Alternatively, get a taste of investing by buying Savings Bonds that are fully backed by the Singapore government.
You have virtually no risk of losing your money and they can be bought via ATM machines after you’ve created a CDP account. However, they typically yield between two to three percent (assuming you hold on to it for 10 years), so don’t count on it to buy a big new house.