Hello everyone, welcome to a new year 2019! Hope the year has been great so far, new year, new beginnings. I had a good time catching up with friends and made some new ones over the new year period. The new year aspiration of wanting to start investing often pops up during conversations. This is a good thing as people are starting to get concerned of their finances. However, I am kind of disturbed by the information / questions that they ask:
- So how much do you earn from investments
- How to get rich quickly
- I have no money right now so I will just wait until I have more money before investing
- My financial planner can settle for me
Everyone has their starting points and I was once in that stage too. Investing felt like a complicated topic with financial jargon and complicated numbers. So before we start investing, we need to know our financial health first. Firstly, Do we have existing debt / loans like credit card, school loans? If so we would first need to eliminate all these debts before we start investing. Secondly, have an emergency funds ready. The typical rule of thumb is setting aside 6 months of expenses. Reason being in the event of some unforeseen situation where you might need to stop work, these amount will help to tide you over until you resume work. So once we have settled these 2, then we are ready to invest.
1. Ask yourself why do you want to invest?
Isit to achieve financial independence, no need to rely on day job. Knowing the why is important because then it acts as the end goal and you would not give up in the middle of the process.
2. Know your risk appetite
There are various types of investing like value investing, dividend investing, index investing. Value investing is a strategy where investors seeks for undervalued company and buy in them in a bid to sell them off when the company is properly priced. Dividend investing is mainly investing in stocks like blue chips companies (Singtel, ST Engineering etc), receiving a dividend. Index investing is buying the entire market (STI ETF). Know which style of investing suits you and that you are comfortable with it even if the market tanks.
Before you start investing, I highly recommend you visit the library and read up to gain a better understanding on the investing world.
- Millionaire Teacher, Andrew Hallam
- Rich Dad Poor Dad, Robert Kiyosaki
- The Little Book on Common Sense Investing, John Bogle
- Gone Fishing with Buffett, Sean Seah
- Rich by Retirement, Shinythings (hwz) <- Can only be bought online, not found in library
To answer the question on how much do I earn from investments. Since I started in 2013 to early 2018, I managed to benefit from the rising bull market by investing in indexes. In 2018, I changed to a mix of individual stocks and indexes. The market has not been kind during 2018 which resulted in my portfolio being in the red.
If you are looking at investment to get rich quickly, please do not look here. The 4D / TOTO is where you should be looking at. Of course there are investments that allow you to double your capital but then you need to be actively managing it and also entails a lot of risk. You should think of investing as a long term vehicle. If you are in your 20s you dont need the money now, so put them into meaningful investment that grows for your retirement.
Some great man says that compound interest is the 8th wonder of the world. Lets see an example: Alice, Barney and Christopher experience the exact same 7% annual investment return on their retirement funds. The only difference is when and how often they save:
Alice invests $5,000 per year beginning at age 18. At age 28, she stops. She has invested for 10 years and $50,000 total.
Barney invests the same $5,000 but begins where Alice left off. He begins investing at age 28 and continues the annual $5,000 investment until he retires at age 58. Barney has invested for 30 years and $150,000 total.
Christopher is our most diligent saver. He invests $5,000 per year beginning at age 18 and continues investing until retirement at age 58. He has invested for 40 years and a total of $200,000.
As you can see, although Alice invested only 50000, while Barney invested150000, Alice ended up having more money in the end. This is the power of compound interest snowballing by starting early even if the initial amount is small. If we are as diligent as Christopher, the growth of our savings would be exponential. So do not procrastinate any longer, it will cost you more in the future.
Once you have no debts, emergency funds set up and have some spare cash to invest, you find yourself not sure what to invest in. Then some financial planner approach you. I have heard stuff like offering fixed deposit as high as 8%, investments that double if you put 20 years, triple when you put 30 years. Some promotional posters will state an inflated percentage however there will be many hidden costs and caveats that is not shown.
If it’s too good to be true then please avoid.
I also tend to avoid ILP, don’t mix insurance and investment. It’s like if you want to eat chicken rice go to a stall that sells only chicken rice rather than a stall that sells all sorts of meat.
How I started out was by investing in STI ETF, basically the top 30 stocks in Singapore. By using posb invest saver, at as low as 100 a month you can get exposed to your first step into investing. Try out and see if you are able to take the risk, anyway I feel that indexes are super safe in the long term so no loss. After reading and experiencing more, then you can venture into picking individual stocks.