Beginner’s 101 Guide on How to Invest in Singapore in 2024: Everything You Need to Know Before Start Investing

Are you looking to expand your knowledge of investments in Singapore but need more support?

Although 83% of Singaporeans show interest in investment in the Singapore market, there is a knowledge gap.

In this article, I will guide you through the fundamentals of investing, from learning the different investment styles according to investment horizon and risk appetite to choosing the types of investment products for your portfolio and finding a reliable brokerage account.

If you’re ready to take control of your financial future, read this comprehensive beginner guide to learn how to invest in Singapore!

Things to Consider Before You Start Investing

Before investing, consider these 5 factors:

1. Determine Your Investment Goal

Identify your aspirations, such as purchasing a house or travelling, and convert them into concrete investment objectives.

These objectives range from common goals like retirement savings and child education to personal desires like buying a special gift or attending prestigious events.

Then, determine the specific purpose of your investment and calculate the required amount to fulfil each goal, whether it’s S$500k for a home down payment or S$2,000 for attending the Wimbledon Finals.

2. Consider Your Investment Capacity

By investing, you actively set aside funds today to secure your future financial stability. While this encourages the vital principle of delaying immediate rewards, it’s crucial to safeguard your present necessities.

For instance, allocating all your savings for the next decade towards investments wouldn’t be financially prudent if you plan to buy a home soon, as it demands a substantial down payment.

Always maintain a sufficient reserve of cash that can be accessed in case of emergencies.

3. Determine your investment timeframe

Understanding the timeframe of your goal allows you to categorise it as short-term, mid-term, or long-term for your investment in Singapore.

• Short-term goal: A goal that needs to be achieved within three years. Saving for a cross-country trip across Eastern Europe in one year exemplifies a short-term goal.
• Mid-term goal: Goals spanning three to five years, like saving for a house down payment.
• Long-term goals: Extends beyond five years, including saving for your children’s higher education or marriage.

Once you identify the timeframe, you can determine where to invest your money and how much to invest to reach your goal.

This clarity also helps you stay focused on the goal, as irregular investments may lead to a shortage of funds.

4. Know Your Risk Tolerance

Every investor must assess their own risk tolerance.

Before your investments, it is crucial to understand your risk tolerance. Investors typically fall into one of three categories:

• Conservative
• Moderate
• Aggressive

Some products offer higher returns but come with increased risk.

For instance, while mutual funds typically yield higher returns than Fixed Deposits (FDs), they are also subject to market fluctuations, making them riskier.

It’s crucial to determine if you can handle this level of risk.

Avoid investing in assets that exceed your risk tolerance, as it may result in panic selling and the inability to wait patiently to achieve your investment return goal.

5. Understand What You Are Investing In

Consider exploring a variety of investment products available in the market.

You should do your search and have a full understanding of what you are investing in and here are a few investment assets for you to consider:

• Stocks: Represent ownership shares in businesses, offering potentially higher returns but also high risk and volatility.
• Bonds: Loans to governments or companies, generally safe with lower returns compared to stocks.
• Unit trusts (mutual funds): Funds that pool money from investors for investment, offering various choices but with additional fees.
• ETFs: A fund that follows an index, provides diversified portfolios, and is suitable for conservative-risk-profile investors.
• REITs: Investments in properties like shopping malls offer moderate to aggressive risk with higher dividend yields.
• Endowment plans are insurance savings plans that provide life coverage and long-term savings, with penalties for early withdrawal.

Step-by-Step Guide on How to Invest in Singapore

Step 1: Select an Online Brokerage Account

Your first step is to choose an online stockbroker and open an account.

These platforms facilitate transactions, allowing you to buy and sell stocks.

Essentially, the brokerage is an intermediary between you and the stock market, granting you access to various stock exchanges.

Every broker imposes fees for their services, including trade commissions calculated as a percentage and currency conversion fees.

Additionally, some brokers enforce a minimum commission fee.

If you want to invest in US stocks, certain fees are expected to be incurred:

• Commission Fees: Charged by the brokerage firm, usually a percentage of the total transaction amount, with a minimum fee regardless of order size.
• Forex Rates: The broker converts your non-USD funds into USD at their rates, incurring a fee.
• Platform Fees: Some brokers may impose a fee for using their trading platform, although this may be waived under certain conditions.
• Dividend Tax: Non-US residents are subject to a 30% tax on dividends received from US stocks, unlike in Singapore, where dividends are tax-free.

So, pay attention to the fees your chosen brokerage account might charge you!

(Read more about our recommended list of reliable online brokers in Singapore.)

Step 2: Establishing and Funding Your Investment Brokerage Account

Upon registration, complete an online identity verification process with your chosen broker.

Typically, this entails submitting copies of your NRIC or passport and other pertinent documents showcasing your full name and residential address.

Your broker might also administer a customer knowledge assessment to gauge your level of investing expertise.

While these steps may seem tedious, they are essential for your broker to conduct ‘know your client’ verification checks for legal compliance.

After setting up your online brokerage account, you can deposit funds through various methods such as online banking fast transfer, PayNow transfer, or wire transfer.

Note: Ensure accuracy in the amount and currency denomination.

Specific brokerage platforms may impose a minimum deposit requirement.

Step 3: Buying and Selling Stocks

The next step of investing is the exciting step – to buy or sell your particular stock!

One key consideration is the various types of orders that your brokerage platform can execute.

Generally, there are four common buy/sell order types available on online brokerage platforms:

a) Market Order: Executes the trade at the current market price.

For example, a market buy order for one Apple share will be executed at its current price.

b) Limit Order: Allows you to specify a price at which you wish to execute the trade.

For instance, a limit buy order for one share at S$160 will only be executed if the price meets this threshold.

c) Stop-Loss Order: This order is intended to limit potential losses. It triggers a buy or sell order once the stock reaches a specified price.

For example, if a stock drops from S$900 to $800 and you have a stop-loss set at S$880, it will sell your stock at S$880 to safeguard against further decline.

d) Trailing Stop Order: This is similar to a stop-loss order but based on a percentage change in the stock price rather than a specific price.

For instance, if you set a trailing stop order to sell a stock that drops by 10%, it will sell once the price falls by that percentage from its highest point.

Step 4: Determine Your Investment Strategy

After your funds settle, you might feel excited about exploring numerous well-known companies like DBS, Coca-Cola, McDonald’s, and Apple.

However, before diving into purchasing stocks, it is essential to pause and consider your investment strategy, which I have discussed earlier in this article.

You could focus solely on Singapore stocks or diversify into the US market.

The US market offers access to a wide array of stocks, including renowned American companies like Apple and Tesla and non-US entities like Tencent and Alibaba.

You can leverage the US market to diversify your portfolio, reducing overall risk. This diversification proves valuable as companies from different countries may respond differently to similar events.

How to Invest in Singapore: Investment Basics You Should Know About

1. Index Investing

Instead of attempting to outperform the market, index investing aims to match the returns of the market index by investing in low-cost index funds and ETFs.

This strategy banks on the long-term upward trend of stock markets.

As an example, over the past decade, the SPDR® S&P 500 ETF has delivered a compounded annual growth rate of 7.14%, while the SPDR® Straits Times Index ETF in Singapore has seen a compounded annual growth rate of 4.18% during the same period.

This investment style is passive, which means there is no need for extensive research or stock selection. Instead of choosing individual stocks, investors can simply buy into the entire market.

Key terminologies

SPDR® S&P 500 ETF:

An ETF tracking the performance of the S&P 500 index, providing exposure to 500 leading US companies.

SPDR® Straits Times Index ETF:

An ETF mirroring the performance of the Straits Times Index (STI), comprising top companies listed on the Singapore Exchange (SGX).

Management Fees:

Charges levied by fund managers for managing investment portfolios.

Transaction Costs:

Expenses incurred when buying or selling securities within a portfolio.

Market Index:

A statistical measure representing a segment of the stock market, used to evaluate overall market performance.

2. Deep Value Investing

Deep value investing, or value investing, diverges from the conventional approach of chasing future growth.

Instead, deep-value investors seek out undervalued stocks with a significant margin of safety between their intrinsic value and market price.

The primary focus is on acquiring shares of sound companies at discounted prices and holding them in the portfolio for 2-5 years until the market recognises their true worth.

Value stocks are often overlooked initially because they are considered a long-term investment, which requires time for market appreciation of their earning potential or assets.

These undervalued stocks typically fall into two categories:

• Net-net stocks trading below liquidation value; or
• Companies experiencing substantial declines in share prices due to adverse news or performance.

Key metrics such as price-to-earnings (PE), price-to-book (PB), price-to-sales (PS), and dividend yield are commonly used to identify value stocks.

Screening for low PE, PB, PS, or high dividend yield stocks is an initial step in uncovering potential value opportunities.

Key terminologies

Price-to-Earnings Ratio:

The PE ratio shows how much investors are willing to pay for each dollar of a company’s earnings by comparing its stock price to its earnings per share.

Price-to-Book Ratio:

The PB ratio reveals whether a stock is trading at a premium or discount to its accounting value by comparing its stock price to its book value per share.

Price-to-Sales Ratio:

The PS ratio provides insight into how the market values a company’s sales by comparing its stock price to its revenue per share.

Dividend Yield:

Dividend yield measures the annual dividend income generated from owning a stock relative to its price.

3. Income Investing

Also referred to as dividend investing, income investing focuses on companies that provide consistent dividends.

These companies, typically more prominent and established, such as telecommunications, utility companies and REITs, generate steady profits and free cash flow.

As their growth rates tend to stabilise, they can allocate more of retained earnings to shareholders through dividends.

Singapore REITs also offer high dividends, and they benefit from tax exemptions when distributing at least 90% of income to unitholders.

Dividend investing encompasses two primary strategies:

• High dividend yield:

This investment entails identifying mature companies with substantial cash flow. Due to their size and industry dominance, these companies often distribute excess cash flow to shareholders as dividends.

• High dividend growth rate:

A high dividend growth rate focuses on companies experiencing rapid dividend growth. Investors in this strategy prioritise future dividend growth potential over current dividend yields.

Key terminology

REITs, or Real Estate Investment Trusts:

Investment vehicles that allow individuals to invest in a portfolio of real estate assets and receive dividends from rental income and property appreciation.

4. Growth Investing

Growth investing focuses on the future potential of companies poised for significant expansion. It is often found in industries in early stages of development, such as the technology sector.

These companies demonstrate above-average growth rates compared to their peers or industries. Growth investors anticipate capital gains as their primary investment return.

The price-earnings-to-growth (PEG) ratio is a key metric, valuing companies based on current earnings and growth prospects.

However, growth companies often carry higher valuations, sometimes exceeding hundreds or more PE ratios.

Also, do note that these companies tend to be riskier and more volatile, as their growth trajectory is subject to uncertainty.

Key terminology

Price-earnings-to-growth (PEG) ratio:

Evaluates a company’s stock price relative to its earnings growth rate, providing insight into its valuation considering its growth prospects.

5. Sector Investing

Sector investing is a strategic approach wherein investors allocate their funds to specific sectors of the economy rather than adopting a broad market strategy.

This investment strategy serves both strategic, long-term investors and tactical investors aiming to manage their portfolios.

These sectors encompass 11 primary categories in equity markets:

• Energy
• Financials
• Healthcare
• Information Technology
• Consumer Discretionary
• Consumer Staples
• Materials
• Communication Services
• Industrials
• Utilities
• Real Estate

Strategic investors use sector investing to capitalise on long-term trends within certain sectors. In contrast, tactical investors seek shorter-term opportunities to enhance returns or manage risks across different market cycles.

The advantages of investment style include diversification and opportunistic investing. By spreading investments across various sectors, investors can reduce the risk of any single sector’s underperformance and mitigate market fluctuations throughout different cycles.

Additionally, some investors may target specific sectors outside their diversified portfolios to optimise returns or hedge against risks in their investment in Singapore.

5 Types of Investment in Singapore

1. CPF Investment Scheme

Did you know you can optimise your Central Provident Fund (CPF) savings to align with your objectives and grow your investment in Singapore?

Through the CPF Investment Scheme (CPFIS), you can utilise your CPF funds to invest in various products, including insurance, unit trusts, fixed deposits, bonds, and shares.

Expanding your financial assets through investment entails understanding your financial goals, exploring available investment options, and finding alignment between the two.

Two schemes are available, but there are differences in eligible investment products and funding sources.

Alternatively, you may let CPF savings grow steadily in your accounts instead which offers a stable, risk-free option and tax benefits as well.

2. Singapore Savings Bonds

If you want a consistent return on your investment in Singapore, you can opt for bonds. Singapore Savings Bonds (SSBs) and T-bills stand out as reliable options.

Investing in bonds means lending money for a predetermined period while earning a fixed interest rate.

The good news is you will receive your principal amount back upon bond maturity. That means you can expect to receive a dependable income stream.

But how does this make it different from the conventional bank deposits? It all lies in the potential to make an additional profit when you sell them at a higher price than your initial cost.

The SSBs, backed by the Singapore government, are widely regarded as a secure investment option due to the government’s credibility.

Despite their modest returns, SSBs offer stability and security, making them an attractive choice for risk-averse investors.

SSBs may provide a consistent average annual return of 2.75% over a ten-year period. Their slow and steady nature makes bonds an excellent vehicle for safeguarding funds against inflation, particularly suitable for individuals nearing retirement who prioritise wealth preservation.

3. Exchange-traded funds (ETFs)

Exchange-traded funds (ETFs) provide a passive approach to investing in shares by mirroring specific indices like stock or commodity indexes.

In Singapore, if you invest in the Straits Times Index (STI), you will have exposure to the top 30 listed companies without buying each stock separately.

An index represents a selection of stocks that act as a sample of the broader market or portfolio, statistically measuring the changes in the represented stocks to track market performance.

This investment method offers high diversification, as you can pick your ETFs across various industries and assets to mitigate market risks. ETFs also typically feature lower fees compared to actively managed funds.

However, it’s crucial to note that ETFs do not guarantee principal, and investors may incur losses in specific scenarios.

4. Supplementary Retirement Scheme

If you want to contribute voluntarily to grow your retirement savings (beyond your CPF contributions), you can check out the Supplementary Retirement Scheme (SRS).

You can take advantage of the personal income tax relief if you deposit up to S$15,300 annually in their SRS account.

The only downside is the current interest rate is 0.05% per annum, which means your idle fund may erode due to inflation.

For example, with a monthly salary of S$6,700, contributing S$10,000 to the SRS annually yields tax savings of S$700.

These are the investment options through your SRS account:

• Bonds
• Exchange-Traded Funds (ETFs)
• Fixed Deposits
• Blue-Chip Shares
• SGD Fixed Deposits
• Index Funds
• Real Estate Investment Trusts (REITs)
• Regular Shares Savings (RSS) Plan
• Robo-Advisors
• Unit Trusts
• Singapore Government Securities (SSB, SGS Bonds, Treasury Bills)
• Single-Premium Insurance Products

5. Real Estate Investment Trusts

Another alternative to property investing is through Real Estate Investment Trusts (REITs).

REITs function as professionally managed funds that pool capital from numerous investors, which is then invested in real estate ventures.

These investments can range from commercial properties like shopping malls and office spaces to rental properties leased to tenants.

A good thing about REITs is the ability to generate consistent income, often through steady dividend payouts.

It is very similar to collecting rent with no hassle of finding tenants and managing the maintenance of your property.

When evaluating REITs for investment, here are some factors to consider:

• Dividend payouts
• Company profitability
• Leverage levels
• Occupancy rates
• Net asset value

Why Should You Start Investing?

1. Give Your Money A Chance To Grow

When you stash your cash in a bank or savings account, it provides security but do not expect your savings to grow much due to the lower interest rate offered by the bank.

In fact, with inflation, your money might even lose value or purchasing power over time. On the other hand, when you begin investing, you are potentially growing your money in value. With proper investment strategy and depending on your risk appetite, your money could be increasing at a different rate.

Plus, there’s this cool thing called compound growth. It means that as your investment grows, so does the potential for even more growth. It’s like a snowball effect, adding up year after year.

Sure, there are risks – investments can go down in value too – but the potential rewards can be significant.

2. Create a Passive Income Stream through Investing

Ever heard of passive income? It’s like having money work for you while you kick back and relax. By investing in ETFs, index funds, and other passive vehicles, you can set yourself up for a steady income, even in retirement.

Picture this: dividends from stocks, interest from bonds, or rental income from property – these are just a few ways your investments can keep paying you back long after you’ve stopped working.

If you’re dipping into your pension savings, consider a flexible income plan that lets you take out money as you need it.

But remember, it’s crucial to align your investment strategy with your long-term goals to ensure you don’t exhaust your funds prematurely.

3. Beat Inflation with Investing

In Singapore, inflation at 2.62% surpasses the average savings account rate of less than 1%, resulting in a loss of 1.62% annually. Over time, this erosion can amount to over 60% of your wealth by age 60 if you solely rely on saving.

Inflation steadily chips away at your money’s purchasing power like an unwanted guest. But investing acts as a shield against this financial drain. While saving might seem safe, it loses value each year when inflation outstrips interest rates.

Investing offers the chance to not just keep up with inflation but potentially exceed it, safeguarding and growing your investment in Singapore over time.

Conclusion

In conclusion, beginning your investment in Singapore requires understanding the investment basics, recognising the importance of starting to invest, and carefully considering various factors before diving in.

With the guidance provided in this beginner’s guide, you’re equipped to select a trustworthy brokerage and follow a step-by-step approach to investing in Singapore.

By mastering your skills in investing in Singapore and making informed decisions, you’re poised to embark on a rewarding journey towards financial growth and security through investment in Singapore.

Disclaimer:

The purpose of this article is to offer general information and to educate readers. It’s not the same as financial guidance. Risks associated with investing include the possibility of capital loss. Take into account your unique financial situation, risk tolerance, and investment goals before making any decisions regarding investments. For individualized investment advice, speaking with a licensed financial advisor is strongly advised.

Frequently Asked Questions (FAQs)