The Covid-19 pandemic has generated more interest in investing among retail investors, there may still be a misconception that investing is only for the older crowd, says Herbert Lian, executive financial consultant at Inspire Advisory Group, a division under IPP Financial Advisers.
“Depending on how comfortable we are to invest, this may hold some truth for us. However, starting sooner presents a great opportunity to reinvest the returns from previous investments and take advantage of the compounding effect,” he writes in an email response to our interview.
Another misconception, according to Lian, is that people seem to think investing is for the rich, according to the ones he's spoken with, at least.
“In reality, for anyone who is looking to get a head start in the investment world, it is possible to invest small amounts at regular intervals,” he says.
While there is no specific sum of money one has to amass before taking the plunge into the markets, Lian stresses that it is “important to first set aside a minimum amount for savings”.
“[Understanding] your financial health is also key. [Take stock] of your personal finances, income, debt and monthly bills. You will need to have an emergency fund of at least six months’ worth of expenses in times of need,” he says.
“Before deciding when and what to invest in, you should consider your financial needs and objectives. There are plenty of options such as retirement savings plan or dollar-cost averaging – however ultimately which to choose depends on an individual’s needs,” he adds. “Lastly, be sure to get adequately insured for your potential expenses and loss of income due to accident and illness.”
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One way to get started
To Lian, unit trusts (or mutual funds) and exchange-traded funds (ETFs) are a great way for new investors to get started, as they allow access to a diversified portfolio of assets in a single purchase.
The diversification also means that the investments are less risky as well.
However, the key difference between putting your money in an ETF and a unit trust, is that ETFs cost less. That said, while unit trusts may come at a higher cost, they are managed by professional fund managers aimed at helping you achieve specific investing goals.
Hold long-term instead of short-term
“While there is an increasing number of zero-commission or low-commission brokerage platforms available to investors that make it cheap and easy to trade, we should try to resist the temptation to trade in and out of the market,” says Lian.
Why? “It is very hard to time the market top or bottom, even for professionals who spend their lives learning about and watching the market,” he says.
“Investing for the long-term also helps you minimise transaction fees such as brokerage charges, which can eat into your returns,” he adds. “Instead, one can consider putting aside some money every month into a diversified portfolio of stocks and bonds, and then be prepared to hold for the long term.”
SEE:When to cut your losses in the stock market
Investing in different stages in life
When it comes to setting financial goals at different stages in life, your 20s and 30s will be a time focused on building your careers and buying your first property, says Lian.
It would also be “a great time to dip your toes into investing but also remember to leave enough liquidity (whether in cash or CPF) to pay for the down payment of your property,” he adds.
Those in their 40s should, presumably, have more disposable income in their savings. When you’re at that stage, “you should be thinking about utilising the amount that you can invest, especially into equities which offer a relatively higher return (albeit with higher risk) compared to bonds,” he says.
“In your 50s and 60s, as you get closer to retirement, you will likely want to reduce the risk of your portfolios and might want to consider having a higher allocation in dividend-paying stocks and bonds in order to provide a source of passive income for your retirement.”
Lastly, how can young adults better their financial literacy?
Basically, lap up every single bit of information you can find.
The way Lian sees it, they should start by reading “financial newspapers, magazines and newsletters, listen to radio talk shows or podcasts that offer financial advice, use financial management tools to manage your personal finances, and utilise any resources available out there, whether it is online or through your network”
