Investing plays a crucial role in achieving one’s financial objectives, and gaining knowledge in this area is a significant step towards securing a sound financial future. Whether you’ve perused financial blogs or engaged in conversations with friends, it’s imperative to recognise that while initiating the action to invest might seem straightforward and certain opportunities may appear enticing, investors must diligently conduct their own research. This article serves as a concise guide, offering tips into investing in Singapore with a focus on initiating investment journeys with just S$100.
Many have the misconception that a large sum of capital is required in order to kickstart an investment portfolio. Not only is this an intimidating thought for new investors, it is also untrue. You do not need a lot of money to invest, and can start with as little as $100.
Many budding investors start small. The key tip to investing is to educate yourself on the various investment options out there, do your own due diligence, and see what type of investment best suits your personal risk appetite and investment time horizon.
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What Can Investors Do with Just $100?
First of all, it is important to clarify that it is not just $100. To put things into perspective, $100 can be a large percentage of a young working adult’s disposable income, particularly in the current uncertain economic climate triggered by the coronavirus. In addition, if you look at the return on investment, a $5 gain or $5 loss may not seem like a lot in terms of lump sum value, and can probably get you a meal at McDonald’s, but if the gain or loss stemmed from a $100 investment, then this constitutes to 5% of the investment amount.
As evident, every dollar amount invested matters. Over time, if you were to put in $100 a month, you would have invested $1,200 in a year and the end results can be rewarding in the long run. Ultimately, every dollar is a commitment set aside towards investing for your future.
Understanding the concept of opportunity cost becomes particularly valuable in this context. Opportunity cost pertains to the potential benefits sacrificed when choosing one option over another. In the case of investing $100, it involves considering what you would have gained if you opted not to invest. This could have manifested as treating your family to a delightful dinner, indulging in a personal reward, making a contribution to a charitable cause, and more. Assessing opportunity costs involves a thoughtful analysis of the pros and cons, emphasising the potential benefits of investing in comparison to alternative choices.
What are the Benefits of Investing $100 a Month?
You might be wondering how it is possible to start investing with $100, but you would be surprised. Investing on a monthly basis as opposed to trying to time the market by attempting to buy low and sell high is a form of dollar-cost averaging strategy. This strategy is adopted by investors who divide up their total amount of investment dollars across periodic purchases of a target asset to potentially reduce the impact of volatility on the overall purchase. For example, one may choose to put a certain amount of money into an investment vehicle on a monthly, bi-monthly, or quarterly basis.
As you can imagine, dollar cost averaging can possibly be a starting point for inexperienced investors or busy investors with no time to scrutinise and track their portfolio performance on a daily basis.
In addition to reducing the impact of market volatility and being a user-friendly strategy for less experienced or busy investors, investing $100 a month through dollar-cost averaging offers several other benefits of investing:
I. Discipline and Consistency:
By committing to a regular investment schedule, investors develop financial discipline. This consistency can be beneficial in the long run, as it helps to avoid emotional decision-making that often occurs when trying to time the market.
II. Mitigating Timing Risks:
Timing the market perfectly is challenging, even for seasoned investors. Dollar-cost averaging eliminates the need to accurately predict market highs and lows. Instead, it takes advantage of market fluctuations over time, potentially reducing the risk associated with making large investments at the wrong time.
III. Lowering Average Cost Basis:
Dollar-cost averaging allows investors to buy more shares when prices are low and fewer shares when prices are high. This results in a lower average cost per share over time, potentially increasing overall returns when the market trends upward.
IV. Long-Term Wealth Accumulation:
Regular, disciplined investing over the long term harnesses the power of compounding. As investments grow, the returns generated on previous investments can contribute to an accelerating rate of wealth accumulation.
V. Reducing Emotional Stress:
Market fluctuations and unpredictable events can lead to emotional stress for investors. Dollar-cost averaging promotes a more relaxed approach by focusing on the long-term trend, reducing the impact of short-term market noise.
Here are some investment options available in Singapore: How to start investing with $100.
(Do note that all investments inherently have risks)
Debt Investing
When figuring out how to invest in Singapore, consider all the options available and conduct your research accordingly, consider starting your research in Debt Investments. Debt investing allows individuals or businesses to obtain loans directly from others, cutting out the traditional financial institution as the middleman.
One such example is Funding Societies, a debt investing platform that bridges the gap between SMEs in need of business financing and investors looking to invest in another asset class. The platform offers 6 types of investment products across varying risk levels.
There are 2 products under the Guaranteed products line, both ensuring that investors’ returns are effectively guaranteed. This means that if the SME makes a late repayment or default in those deals, Funding Societies will arrange for the repayment to the investors on time. The other four types are Property-backed Secured investments, Invoice Financing investments, Revolving Credit investments and Business Term investments.
Shares
Shares are units of equity ownership interest in a company or financial asset that give an equal distribution in profits, if any are declared, usually in the form of dividends. Simply put, buying shares is a bit like buying a small bit of a company. Depending on the company’s performance and market sentiments, the price of the share that you own will fluctuate in the stock market.
Exchange Traded Fund (ETF)
An ETF is traded on stock exchanges, allowing investors to buy and sell shares throughout the trading day at market prices, which may be different from the net asset value (NAV) of the underlying assets. ETFs offer investors a cost-effective and liquid way to gain exposure to a diversified portfolio, as they typically have lower expense ratios compared to traditional mutual funds. Additionally, the ability to trade ETFs like individual stocks provides flexibility for investors to implement various trading strategies, such as limit orders, stop orders, and short selling.
Regular Shares Savings (RSS) plans
RSS plans are a form of systematic investment plan (SIP). This type of plan allows investors to make regular and equal payments into a mutual fund, trading account, or retirement account. Investors can save regularly with a smaller amount of money in this case, as compared to putting in a lump sum of money at one time.
Unit Trust
Unit trusts are unincorporated mutual fund structures that allow funds to hold assets and give out profits to individual unit owners instead of reinvesting them back into the fund. Simply put, unit trusts are funds that usually hold specific assets in specific quantities where profits and income are passed to its investors.
Robo-advisors
As the name suggests, robo-advisors are digital platforms with automated algorithms that guide financial planning for its investors. There is often little to no human supervision. The robo-advisory platform usually does a check on the investor’s financial goals, financial situation, and risk appetite before advising on a suitable portfolio type.
How can investors make the most of their investment?
Just as diversifying your portfolio on debt investing on debt investing platforms can mitigate concentration and default risks to optimise portfolio returns, splitting your capital in a wide variety of non-overlapping investment instruments can help diversify your overall investment portfolio.
Besides diversification, reinvesting investment gains back into the investment instead of spending it may also be useful. This is due to the compounding effect where money can grow bigger over time. Compounding is the process in which an asset’s earnings, from either capital gains or interest, are reinvested to generate additional earnings over time. The investment ends up generating earnings from both its initial principal and the accumulated earnings from preceding periods. To see this for yourself, use a compound interest calculator to calculate how much your monthly investment or savings can grow.
What else can new investors invest in?
Self-enrichment is something that can be neglected when researching the topic of investments. Channelling in some money for your own financial literacy is also important as it equips you with better knowledge to form your own investment philosophy and judgement.
Of course, not all education is expensive. If costly financial courses are not suitable, you can also source for free investment articles online or share a finance magazine subscription with friends and family.
More information on how to invest in Singapore |
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7 Types of Alternative Investments
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Alternative investments beyond the regular stocks and shares can be a means to diversify your portfolio. |
Ultimate Guide: Investing During a Recession [2020]
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COVID-19 has brought global economic activities to a near standstill, As investors, we should stay apprised of global news and continuously review our investment. |
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