Ask anybody around; they’ll probably tell you that investing is a good idea. But what exactly do you invest in, and how do you even start? Today, we’re breaking every down and answering all the questions you may have about investing in Singapore. Whether you’re looking to grow your wealth, save up for retirement, or simply achieve any other financial goals you may have, navigating the world of investments doesn’t have to be as daunting as it sounds!
Financial Terms: What Does _____ Mean?
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When it comes to investing in Singapore, you may hear a lot of words thrown about, such as fixed deposits, interest rates, liquidity, risk, and more. Let’s break it all down so you can get a clearer picture on where and how to even start investing.
- Fixed deposit: A fixed deposit, also known as FD or time deposits, is a single payment put into your bank account for a certain amount of time at a rate of interest that’s placed by the bank. At the end of this certain amount of time, you’ll receive back the amount you have invested, plus compound interest.
- Simple interest: There are two types of interest; simple interest and compound interest. Simple interest is calculated based on the original amount of, let’s say, a fixed deposit. If $1,000 is deposited with 5% simple interest, you would get back your original $1,000, plus $50 each year.
- Compound interest: The second type of interest in compound interest. If you deposit $1,000 with 5% interest, you will get back your $1,000, but also the accumulated interest of previous periods, which would be the original $1,000 + interest of $50 in the first year, then $1,000 + interest of $52.5 ($1,050 × 0.05) in the second year, and so on. Banks will normally use compound interest, and different banks will have different compound interest rates.
- Liquidity: Liquidity refers to how easy an asset or security can be quickly bought or sold in the market without affecting its price. An example of something that’s high liquidity would be cash, and example of something that’s low liquidity is real estate or property.
- Asset: An asset is something that has value, and owned by an individual, company, or entity. There are different types of assets, such as tangible assets (can be touched and seen) – real estate or vehicles, intangible assets (non-physical things) – patents, trademarks, copyrights, and intellectual property, and thirdly, financial assets – a sort of intangible asset that get their value from a contractual claim – stocks, bonds, mutual funds, derivatives, as well as cash equivalents like savings accounts and certificates of deposit.
- Savings: This is the amount of money that you keep and don’t use until an emergency.
- Investment: This is the process of putting in money towards something that will make you even more money.
How Much Do You Need To Start Investing?
You can actually start investing right after you have a solid emergency savings fun, which is typically around 6-months worth of income.
There are two methods of investing:
1) Investing regularly, AKA Dollar Cost Averaging: There are certain investments that allow for a monthly deposit which start from just S$50.
2) Lump Sum Investing: You can probably tell from the name that this method requires a much larger deposit, mostly due to the asset’s price. In certain situations, like being a landlord or trading derivatives, this will be the only option.
What’s The Ideal Rate of Return?
The rate of return is how fast you’ll get your money back, and also grow your wealth. The current rate of inflation in Singapore’s inflation rate is around 3% to 4% each year, so if your investments produce returns below that, you will be losing money and will not be growing your wealth. Therefore, your rate of return per year should be at least 5%.
How Do You Start Investing?:
- Be free from debt: Many people will say that it is not a smart decision to start investing when you still owe payments.
- Do your research: It is crucial to do your due diligence and do your own research on what’s actually worth investing in.
- Create a diversified portfolio: As the saying goes, don’t put all your eggs in one basket.
- Be prepared: Have the right mentality and don’t start panicking when the market suddenly dips or fluctuates.
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