Many people are looking for ways to grow their money through investing; better yet if the risk is low.
One of the many ways recommended on many financial websites and blogs in Singapore is through the stock market. However, for someone who is still using fixed deposits as an ‘investment’ vehicle and even if stocks is considered plain vanilla to the financially-savvy people, that’s still unchartered waters.
Whoever claims that the stock market is ‘safe’ needs to understand that’s a relative term. Are you talking to someone who is looking at a 10-year investment horizon? Someone who has deep pockets to buy more of a falling stock to lower their average cost?
It all depends, does’t it?
The fact that the whole system of trading is almost intangible – paper, phone calls, numbers on a screen… scares away people who aren’t sure what’s happening with their money. So this post is for you if you want to start out your investment journey outside the stock market.
1) Singapore Savings Bonds (SSB)
The SSB has caused some hype earlier this year after the government announced that this investment vehicle offers individuals a chance to invest in a long-term, flexible option with principal-guaranteed returns. This type of investment sits very well with those who are after low-risk products, such as the aforementioned investors who look upon fixed deposit as a way to grow their wealth. I’m not surprised by their popularity here – the SSB are safe, offer a low entry barrier and are backed by the highest AAA-credit rating of the Singapore Government. You can start with a minimum amount of $500 and can expect an annualised return of 2.63% if you hold it for a full 10-year tenor.
2) Government Bonds and Securities
To explain bonds simply, think about how governments need money to fund their spending for infrastructure or social programmes. Other than getting the money from taxes, they can also raise money by issuing bonds. When investors like you and I buy bonds, the government is essentially paying us interest(coupons) on the money we ‘loaned’ them.
In Singapore, they are called either Treasury Bills (T-Bills) which mature in less than a year or SGS Bonds with maturities of 2, 5, 10, 15, 20 and 30 years. SGS bonds pay coupons twice a year. The yield is higher for longer term bonds and range between 1% for T-bills to 3.16% for 30-year bond holdings.
3) Monthly Investment Plans
To make investing in stocks more accessible to the man on the street, various brokers and banks have introduced monthly investment plans for investors to buy shares regularly but at a lower capital output. You only need a minimum of $100 per month to start investing using these plans.
Some of the offered ones include – POSB’s Invest Saver, OCBC’s Blue Chip Investment Plan, Maybank Kim Eng’s Monthly Investment Plan, and Phillip Securities’ POEMS Share Builders Plan.
These work by the principle of dollar-cost averaging. You buy a fixed dollar amount of a chosen stock or stock index on a monthly basis so that the cost of buying is lowered over the long term. This removes the risk of market timing for people who do not have time or lack the know-how of choosing a stock. For the risk-averse, it’s best to buy into a stock index like the STI or a blue chip stock.
4) Buying Precious Metals
Buying gold for value is not a new concept here. In fact, it might be the most familiar method to ‘invest’ for the pioneer generation! While there are diverse views about the value of precious metals like gold and silver, you have to recognise that it is still a benchmark the financial industry looks at and an asset governments hold globally.
There are many ways to gain exposure to gold investment – physical (investment-grade bars are best), buying a gold Exchange-Traded Fund(ETF) or buying gold jewellery of at least the 916 or 999 purity-grade.
5) Peer-to-Peer Lending
Peer-to-peer (P2P) lending is one of the current hype of alternative investments. The concept is simple – capital is raised mostly through individual investors via a platform to fund a company. For investors, you get rewarded by interest rate payments from the company you have helped to crowd-fund.
The risk? Default by the borrowing companies, which are often new businesses who may not qualify for business loans from banks. The upside is that the interest rates are pretty attractive – up to 20% and you can start with a minimum of $1000.
Currently, two prominent P2P leading platforms in Singapore are Funding Societies and Capital Match.
While investing in alternative areas may not be for everyone, you now know of new areas to explore where your money can grow.