Let’s get real.
You’re like me, in your twenties or thirties, a typical salaried worker settling into your career and getting your monthly paycheck.
Your bank balance looks just okay and is gradually growing each month. “No problem,” you tell yourself.
You then scroll through your social media feed and see a slew of alarming headlines: “Bank X, Bank Y to further cut interest rates on savings accounts”.
That’s when it hits you, because the numbers just don’t add up. If annual inflation is around 1.5 percent, the money in your bank account that gives 0.3 percent interest isn’t really “growing” at all.
(Real life scenario, by the way. In 2020, several major banks in Singapore made repeated cuts to their savings account interest rates.)
So you turn to this concept called investing, because
your father / mother / girlfriend / boyfriend / financial advisor basically the whole world tells you it’s what adults gotta do.
Investing is necessary if you want a shot at properly growing the value of your wealth, they say. Financial literacy is important.
The ongoing pandemic has also led more youths - Gen Zs and Millennials alike - to dip their toes into financial trading.
But where and how does one even start? As a novice, here’s a crash course on four basic concepts you must know to give yourself the best possible chance.
Concept #1: Investment products
This concept addresses the question of what to invest in. Like other kinds of products (e.g. computers, books, or food), there are different categories to choose from.
Traditionally, there are two basic types of investment products: bonds and equities. (We’ll exclude derivatives for now because they are more complicated and risky.)
Bonds: Governments and corporations use bonds to “borrow” money from investors to fund various endeavours. When you purchase bonds, you are typically paid a fixed interest rate. There usually is also a fixed maturity, or expiry, date.
Example: The Singapore Savings Bonds (SSB), which are issued and backed by the Singapore government.
Equities: When you buy an equity, you are buying a stake in a company. This equity you hold is therefore a portion of what the company is worth (the value of its assets minus the value of its liabilities) at any given point in time.
Example: When your friend tells you to buy Apple or Amazon stock, you buy because you think the value of the company will grow over time, increasing the value of your equity as well (hopefully so you can sell it for a profit).
You may come across “special” classes of equities, such as Exchange Traded Funds (ETFs) and Real Estate Investment Trusts (REITs).
With an ETF, you are not buying a specific equity, but an index (or pool) of equities. Example: The Straits Times Index (STI) ETF is a weighted index of the top 30 eligible companies on the Singapore Exchange. By buying into the STI ETF, you are therefore gaining exposure to 30 companies, including the likes of DBS, OCBC, Singtel, and CapitaLand.
A REIT is a company that owns or finances income-producing real estate, which could be across a range of properties. Example: By buying into the CapitaLand Integrated Commercial Trust REIT, you will gain exposure to a range of office and retail developments including Raffles City, Funan, IMM, and CapitaGreen, among others.
Concept #2: Charges and fees
Investing through any sort of broker or investment platform is bound to incur you some costs, akin to the GST and service charges when dining in a restaurant, or the admin and legal fees when purchasing a house.
By and large, there are three main types of charges and fees to look out for when choosing a broker or platform: commission, platform fees, and trading fees. Generally, the lower the costs the better, as such costs directly eat into your investment returns.
Commission: This is how the broker or platform earns its living. Note that commissions usually apply on both purchase and sale, so a $10 commission per trade means buy is $10, sell is also $10. Total $20.
Platform fees: A.k.a. admin fees, to keep the platform going. Most platforms that charge platform fees do so as a percentage of the total value of your investments. For example, if you have $10k in investments, and the platform fee is 0.2% p.a., you would be paying $20 a year.
Trading fees: These are fees incurred on each trade because when your broker or platform executes the transaction, they are essentially doing so via an exchange (like SGX, in the case of Singapore). These exchanges impose fees. It’s often as unavoidable as the GST on a sack of rice.
To attract customers, some brokers and platforms may even offer promotions or reductions in commissions, platform fees, or trading fees. Try to take advantage of such promos - when you’re starting out, every dollar and cent counts.
Concept #3: Dollar cost averaging
There are different types of investing styles and strategies.
My boss was previously a fund manager in the finance industry. I once sought his advice on investing, and he referred me to the age-old mantra “buy low, sell high”. While this is technically true, I took it to mean that I should focus on figuring out when prices are low (to buy), and when they are high (to sell).
It took me a while to realise that, unless you’re some sort of alien from the future, it’s humanly impossible to know when prices are considered low or high. This concept of “timing the market” can be challenging to implement consistently.
Instead, steady and disciplined investing helps one ride out the highs and the lows, and benefit from long-term price appreciation and the power of compounding.
Dollar cost averaging (commonly referred to as DCA) is one such strategy. It involves setting aside a fixed amount of money every month to invest, regardless of whether market prices are high or low.
To illustrate, let’s say you are willing to invest $1,200 a year. Instead of stressing over when to invest this $1,200, you can consider an investment platform that helps you invest $100 a month. If in a given month the stock trades at $1 per share, your $100 will buy you 100 shares. If in another month it trades at $0.50 per share, your $100 will buy you 200 shares.
In other words, DCA allows you to accumulate more shares when the price of the stock is “low”, and fewer when it is “high”, averaging out the risk involved.
Concept #4: Learning as you go
I can’t overstate the wisdom behind the 10,000 hour adage. At the end of the day, it’s all about putting your feet in the grass and learning as you go.
There are many ways to do this, ranging from online resources like Investopedia, to reading independent analyses on Medium and Substack, to following key investment personalities on Twitter.
The more you’ve learnt and the more you’ve experienced, the more measured and intentional your investing decisions are likely to be.
Because of how expansive the world of investing is, if you adopt the view that you’ll only have the confidence to try once you’ve learnt everything, you’re never going to start.
And that might mean being stuck with a paltry 0.3 percent interest from your bank savings account.
Which doesn’t sound like a plan to me.
Put your new investing knowledge to good use, and don’t stop learning.
moomoo is a one-stop investing platform that enables you to trade stocks on the U.S., Hong Kong, and Singapore markets. It also provides access to ETFs, REITs, U.S. stock options, and American Depository Receipts.
If you don’t yet have an investing account, it is never too late to start, and an online trading platform like moomoo allows you to do self-directed trading in a safe manner. Futu Singapore, the company that offers the investment products on the app, is a capital markets license holder regulated by the Monetary Authority of Singapore. Futu Singapore’s parent company, Futu Holdings, is also backed by tech giant Tencent.
From now till Aug. 10, level up your financial knowledge bit by bit by attempting moomoo’s Learn & Earn daily quizzes. Each correct answer allows you a try at a virtual gachapon machine, and you can receive sure-win cash coupons of varying amounts (up to S$1,888 daily).
These cash coupons can be exchanged for cash upon your redemption on the moomoo app, and the cash will be issued to your corresponding securities account. Of course, the earlier you start, the more cash coupons you can accumulate.
Even after the end of the Learn & Earn campaign, your learning need not stop. The moomoo trading platform offers many courses, webinars, live tutorials, and even a social forum (chat on all things investment-related with others in Singapore and around the world) all within the app. Noobs and seasoned investors alike can use these tools and resources to become more savvy and confident over time.
This sponsored article by Futu Singapore makes the writer wish learning could always be rewarded like that.
Images via Getty and moomoo.