Investing may be confusing to first-timers. We will give you enough facts here to decide if you want to do it yourself or get a professional advisor to deal with this profitable headache.
What everyone should know about stocks and bonds
Investing consists of stocks and bonds and other materials deemed to have monetary value. (gold and silver, for example)
You probably already understand what a stock is. It is a share of a certain company traded in the stock market and it’s price changes every working day the stock market is open. Your profit or lack of it depends on the difference between the price you bought at and the price you sold.
Is all these stocks-buying hype worth it? Yes!
The Standard And Poor 500 index (S&P 500, an index tracking the top 500 companies in the US stock market) has a positive average annual return of 10.6% the last 20 years!
Stainless steel apple
A bond is a debt issued by governments and often large companies so that they can raise money.
Think of a bond this way. A Government Alpha needs to raise money to execute it’s 5 year plan to improve infrastructure in the country. So it sells you a stainless steel apple for $100. Every year that you hold on to that stainless steel Alpha apple, you get paid $2.50 for holding it. This is called the interest rate. Let’s say it is a very short term bond, and you can sell the stainless steel apple back after 4 years, you would have gotten $10 on top of the $100 you lent to Government Alpha. That’s how you made money from the bond.
“What? Only 2.5% per year?!”, you think.
That is a decent and realistic outcome. Check your bank account and see how much interest your bank is actually paying you for putting all your money there.
What is a Fund?
A fund is a product that lets you buy into a group of stocks/bonds with the same theme (e.g Tech, Medical, Retail etc), so that you don’t have to pick the stocks yourself. Such funds come with management fees. We recommend only buying from professional fund houses that has been around for a while, because these are the funds that will perform. Some financial advisor sells you Sub-funds which is basically a group of different funds, and that is just ill advice. Why? Without taking account of profits yet, you are already going to pay 2 times the management fees! (one from the fund house, the other from the sub-fund provider who basically packs these funds together and resell it)
The stocks – bonds ratio
As you see now, stocks and bonds are two different animals. Stocks are more volatile (prices changes each day, and it can go up and down fast) while bonds are safe but the returns might be considered boring. So how do investors balance it so that they can hope for more profits yet have a bit of stability?
They invest 80% in stocks and 20% in bonds. If you want more security, you could do 70% – 30%. How about people who do 100% in stocks? It is perfectly okay, considering they know what they are doing and keep a keen watch over the market.
Where do I invest?
Today there are so many investing apps on the market that you can just download, set up , and get verified within 1-3 days. Please check the app carefully, and make sure
- It is MAS approved. Most apps now would have already have thousands of downloads.
- You understand how much the app charges you to make each purchase
- You understand all other fees and charges
Some people bleed from high “commission rate” that some apps charge you. Make sure it is a reasonable amount, such as a fixed fee of $1.50 per transaction plus GST. Please do your own research on these very carefully.
Still too much?
It’s perfectly normal not to understand even some of these basics. Singaporeans don’t have enough time! We work too hard, sleep too little, and spend whatever available time taking care of our families.
If you would like to get started, we can recommend an agent to you. If you click here, it brings you to an ad on this website where you can sign up to be a potential investor. The assigned agent will be a MAS-licensed financial advisor with experience and proven background in picking profitable funds.
