[Building Blocks]: How should I get started?

Hello everyone! Hoped that all of you had a great CNY holiday. Haha since I am now on my CNY block leave I decided to write today. In my previous few “Building Blocks” blog posts, I have talked quite a bit about the different styles of investing and the all so important investment objectives that everyone should have before investing. Since we are all richer due to our red packets (for those singles out that :P), I thought it is timely that I should touch a bit about how to actually get started.

Off my head, I thought of a few questions that a new investor would have when he/she is starting out.

  1. How much should I invest?
  2. What to invest?
  3. How do I go about doing it?

(Do reach out to me in the comment box if you have any more questions about investing. :). I will do a separate blogpost to address those questions if any haha)

There are 2 investing instruments that I would recommend a young and new investor to consider that would answer the above questions.

1) Regular Saving Plans (RSP)

What to invest?

 RSP is a great way to get started on investing. Most of the banks in Singapore offer RSP, but since most people are account holders of DBS or OCBC. I will mainly touch on the RSP programme that the 2 big banks offer. For me, I would recommend against investing in mutual funds because they tend to do worse than the general market in the long term. I would prefer a RSP in an index fund or an Exchange Traded Fund (ETF). Both the index fund and ETF are created to match the performance of the broad market. For instance, the STI ETF is created in a way to match the movement of the STI (the top 30 companies in the SGX). So whatever happens in the market, will be reflected in the fund. Also, sales charges for these type of funds are generally cheaper than a mutual fund because there are lesser transactions (less actively managed) made by the fund manager.

So how does a RSP works? A RSP invest a fixed amount of money every month into the fund you are intending to invest in. For instance, you could do a $100/mth RSP in the STI ETF.

pros-and-cons-of-rsp

RSP is mainly for those who want to invest for the long term and may not have a huge upfront capital to invest at one go. Think of this like putting your money into a piggy bank that yield higher interest rates than your normal banks’ interest rate.

STI ETF returns.png
If you hold this STI ETF for 5 years you will get a pretty decent 4.66% return compared to the bank’s non-existent interest rate

How much to invest?

This question will really depend on yourself. How much will you be able to take out from your monthly income to ensure that your living expenses etc are not affected. Since the RSP will only see fruition in the long term, cancelling the plan midway is not very beneficial to you. Hence, it is really up to you to decide the amount. In SG, the minimum amount to put in an RSP is $100/mth.

How do I go about doing it?

DBS and OCBC both have different types of RSP. You can only get an RSP with them if you are an account holder of the bank. For both banks they offer investing in RSP in unit trust. Do note that unit trusts are usually investment in mutual funds which I do not really recommend. (But of course if the funds have a good track record of returns then by all means). What I would recommend is their RSP in ETF and equities.

For DBS, their RSP allow you to choose between the NIKKO AM  SG STI ETF (the one shown above) and ABF SG BOND INDEX FUND (which invest in the bonds of SG)

For more info on DBS RSP, click here

For OCBC, their RSP is different from DBS, OCBC allows you to invest in blue chip companies in the SGX. The plan is called Blue Chip Investment Plan. Basically, the same concept of RSP applies but they invest your money into a blue chip counter you choose monthly. Of course the charges are a bit different for this plan.

For more info on OCBC Blue Chip Investment Plan, click here

Summary

The RSP is a very powerful tool and forms a relatively risk free investment vehicle for starters, but it must be held for the long term in order to realise the gains. For young investors who may not have a monthly pay now, this could be a bit of a problem as you may need to scramble enough cash in your bank account before the investment date every month. Ultimately, you need to carefully plan your expenses before you embark on this plan.

2) Investing directly in the stock market

What to invest?

The other way to invest is to invest directly through the stock market. Imagine the stock market as a big supermart and in the supermart there are a myriad of products on the shelves. Some may be more expensive but of better quality, some may be cheaper but of poor quality, some may be a new product that has just arrived etc etc. The trick here is to pick the right product that suit your personal taste and preference. And all this can be answered by your investment objectives. The stock market can be categories into 3 groups in terms of risk level.

risk-table-for-investing-in-stocks

If you are new to the market, you can consider your first stock to be something relatively of lower risk like an index ETF or a blue chip (Do note that there are many other ETFs too which have different objectives.) Slowly, as you learn more about how to evaluate a company fundamentally and technically based on their chart (which I will also share with you in future posts) you can invest in normal equities while minimizing your risk.

How much to invest?

This is again a subjective question. But I will share with you some pointers I learn while investing in the stock market with little upfront capital. Firstly, the commission for most brokerage houses in SG is at least 40 SGD for a two way trade (Buy and Sell). So the lesser the amount of money you invest in a stock, the larger the percentage that the commission will stand in your profit. Ultimately, you want to make a profitable trade so taking into account the commission is very important. Secondly, with lesser amount of money, the multiplier effect of your stock is much lesser. For instance, someone with 1000 shares will make more money than someone with 100 shares given the same percentage increase.

All in all, the commission cost is the first hurdle to cross before you can be profitable in any trade. And using the multiplier effect will greatly increase your chance of beating that first hurdle. So how much to invest depends on whether you can understand the risk reward ratio of the stock you are planning to invest and giving it sufficient amount of money to beat the first hurdle. For me, I always try to purchase at least 1000 shares in the stock that I plan to invest as it set a nice $100 return for every $0.10 increase in stock price.

How do I go about doing it?

First and foremost, in order to start investing in the stock market, you need to have a brokerage account that is connected to the Central Depository (CDP) which stores all the shares you buy in the SGX. There are several brokerage houses in Singapore, I will list out a few.

  • DBS Vickers
  • OCBC Securities
  • Philip Securities
  • CIMB Securities

Majority of the brokerage houses in SG charge about the same commission fees. A minimum of $25. Some brokerage houses have special programme to differentiate themselves. For instance, DBS Vickers Cash Upfront Account only charge a commission of $18 for buying. For brokerage houses that are owned by banks like DBS and OCBC, they would usually require you to have a savings account with them. 3rd party brokerage houses like Philip Securities doesn’t require you to do so. For me, I chose DBS Vickers because I am already using their savings account which save me the hassle to open another savings account with another bank. You do have to be at least 18 in order to open a brokerage account with some of the brokerage houses. Some require you to be at least 21. Hence it is important to research each brokerage houses first before signing up with them and you can have several brokerage accounts with different houses.

Here’s a good article to help you in choosing a brokerage house.

In conclusion,

these are the 2 ways I put forth for new investors to go into investing. Do always remember to do your due diligence before plunging into any decision and allocate your money well. That’s all from me today. If you have any questions, I would really love to hear them. Simply comment below and I will do utmost best to answer each one of them. Adios! 🙂

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