How to start investing my money? What should I invest in? When should I start investing? Why should I invest?
These are just some of the questions that are commonly thrown to me whenever I talk about investing with my friends or colleagues. Tbh, some of these questions were also in my head when I first started my investing journey. As such given the commonality (I didn’t even know such a word exist) of these questions, I will thus give my own brief perspective on such questions, using the 5Ws and 1H framework. Yes, if you haven’t realised yet, the 5Ws and 1H basically stand for Who, When, Why, What, Where and How.
Wait what? Are we going back to writing essays in school? No no, relax we are not. I just felt that it is really applicable to the topic of investing one’s money, especially when first starting out. Besides, I also needed an interesting title for my blog post to pique one’s curiosity right??
So without further ado, let’s get into it.
Who should invest
In this day and age, everyone should have some form of financial investment whenever feasibly possible. Given the vast array of different financial investments of varying risks, excess cash after accounting for essential expenses and emergency savings should always be invested. Having said that, I do feel that there is an appropriate time where one should start thinking about investing their money.
When should I invest
In a perfect world, one should start investing their money ASAP so as to reap the benefits of compound interest. However, we do not exactly live in a perfect world. Life often throws a few surprises at us whether we ask for them or not. Some of us have student loans or personal debts to settle or are earning barely enough income to cover essential expenses each month. In such instances, it is often wise to clear such debts (especially those with high-interest rates) or look for ways to earn additional income first, before thinking about investing one’s money.
However, it is still wise to park any extra funds, in higher yield savings accounts such as the UOB One or DBS Multiplier, if you can meet the conditions and do not fall below the monthly requirement amount. After all, the interest rate on such accounts will still be better than a mere 0.05%. Yes, 0.05% is the interest rate of a traditional savings account. Depressing right?
Now, what if I do not have any debts and have a comfortable income, when should I reasonably start to invest my money? Well, if u ask me, one should start investing once they have a regularish monthly income, has no difficulties coping with their regular monthly expenses and has accumulated at least 6 months worth of expenses as savings.
The reason for having a regular income and a certain amount of savings first before investing is due to the possibility of unexpected one-off expenses in life. In such instances, we do not want to be forced to liquidate our investments just to pay for such unexpected expenses. Thus, having an income and savings give us a sort of safety net and an added sense of financial security. This then allows compound interest to do its thing for our investments without any form of disruption.
So you have accumulated a comfortable amount of savings and also earning a regular income per month. This means you are now ready to dive right into investing your money right? Now now, hold your horses.
Know why you are investing
Yes, I get it, people invest their money to get even more money. This is a no brainer. But have we ever gone past the superficial layer and really ask ourselves why do we invest? For instance, am I investing my money to grow my retirement fund? Or is it to have enough for a downpayment for my future house? Or am I looking to replace my current income so I can get out of my current job which does not spark joy and do something I like?
By asking why you invest your money creates a clear purpose and goal to work towards. It also allows you to better formulate a viable investing strategy to achieve your aims. For example, if you are aiming for your investments to provide a regular monthly income, your portfolio should be geared towards dividend stocks and REITs. (For those confused, I would explain more about such terms in future posts).
Thus, knowing why you invest would definitely influence what you invest in.
The whats of investing
When it comes to investing one’s money, there are tons of various avenues to go about it. Do you invest in bonds, stocks, REITs, ETFs, commodities or cryptocurrencies? Or perhaps trading forex currency is more suited for you?
Regardless of your preferred investment instrument, knowing what kind of investor you are and what piques your interest will go a long way in your investing journey. Now, what do I mean by this?
The effects of investing in something that you have interest in is pretty straightforward. It stimulates learning which can potentially lead to better investment returns. This thus provides a sort of ‘incentive’ which can further motivate one to hone their investing strategy thereby resulting in even more returns. Talk about compounding effect! ?
Knowing what kind of investor you are would also influence what kind of investments are made. The type of investor one is can often be broken down into three main aspects; one’s investment horizon, risk appetite and style of investing.
Investment horizon refers to how long one intends to hold onto their investments. Are you investing for the long term or looking to make short term profits? Knowing one’s investment horizon would then determine how a person would react in good times and bad. For instance, during a market correction, a long term investor would look to add more companies with good business models due to their discounted prices, as opposed to panicking and selling his or her stocks to lock in whatever profits have been made. Thus, knowing one’s investment horizon would affect his or her decisions relating to investing their money.
Knowing one’s risk appetite is important as it would directly affect one’s return on their investments. I’m sure you have heard of the saying ‘high risk high rewards’. While it may not entirely be true as high risk can sometimes lead to no rewards, it is a fact that one has to invest in riskier instruments, such as stocks or REITs, as compared to fixed deposits or savings accounts, to achieve desirable returns that can beat inflation.
The crux of it is finding the right balance of low, medium and high-risk investment products to meet your desired return on investment. This can be achieved by correctly diversifying one’s investment portfolio based on one’s risk appetite and their willingness to endure potential short term losses to gain long term rewards. By doing so, you can then sleep in peace, knowing that your investments are working steadily for you.
Prior to making any investments, one should decide whether they want to invest passively or actively. Although both methods aren’t necessarily mutually exclusive, it would affect how you go about investing your money. For instance, a passive investor would generally take a hands-off approach and utilise tools such as Robo-advisors or ETFs. Such instruments are useful for individuals who do not like to spend too much time researching and are ok with getting market returns.
On the other hand, active investors often spend a considerable amount of time researching what to invest in. The rationale of doing so is to hopefully achieve returns that can beat the general market. However, one should note that this is not always a guarantee and sometimes there can be periods of underperformance. At the end of the day, if doing active investing does not provide you with overall market-beating returns, sticking to a passive investing style might be more suitable as the time can be used for other purposes instead.
Where should I invest
When it comes to the ‘where’ portion of investing, one should note the geographical concentration/risk of their portfolio. For instance, if you invest mainly in S-REITs are you over-exposing/limiting yourself to just the Singapore economy? Additionally, investing overseas also have certain extra caveats to note such as tax policies, custodian fees etc that may not be applicable to local investments. Nevertheless, I would always highly recommend building a diversified portfolio, based upon both geography, industry and asset class.
How to start investing
Phew, finally we have come to the last part of this post. Let me first just apologise for this rather long post, I did not expect it to hit past 1k words when I first started writing. So if you have read until here thanks for your patience!?
To complete the final part of the jigsaw, you should know how to go about starting your own investment journey. There are many brokerage platforms that you can start off with if you are looking to buy stocks. For starters, I would highly recommend going with DBS Vickers, POEMS or Saxo Markets for investors who prefer an active or semi-active investing style. For passive investors, you can look at sites such as StashAway or AutoWealth.
When it comes to which investing platform to use, fees should be one of the main considerations. Be it the trading fee or the fees paid to companies to manage your portfolio. After all, we definitely would not want to be giving away a considerable amount of our returns right?
So there you have it, the 5Ws and 1H that I feel everyone should consider before investing. By considering these six aspects, I hope that it will embolden you to take your first steps into investing. After all, no amount of preparation can replace real-life experience.