Cryptocurrency….the buzz word that is on everyone’s lips. Cryptocurrency gained popularity a few years ago, but since the pandemic more and more people are interested and wanting to know more on how to earn some money with crypto.
But, is investing in crypto for you? Cryptocurrency is, in short, a digital or virtual currency, which are mostly decentralised and based on blockchain technology. There are many reasons why people use and invest in different coins. Here is a list of some pros and cons of crypto, so that you can make an informed decision as to whether you want to go ahead and buy!
Pros
Transparency
This may be the top reason why people want to invest in cyrpto; cryptocurrency offers much more potential for societal change. All digital currency transactions are stored on the blockchain. This means the data is available for anyone to view at any time. For those who want more transparency in the banking system, this is a very big plus.
Instant Accessibility
There are so many platforms to access digital currencies, such as Binance, Coinbase and Bisq, meaning that you can sell and buy crypto anytime, anywhere. This means that users can make financial decisions in real time, instead of missing a trend because they’re not near a computer. This also means that digital currency is available to everyone, not just investment bankers. For those who want a piece of the pie, but don’t want the fat cats to get any of their money, cryptocurrency is a great option.
Potential of High Returns
From 2016 to December 2020, Bitcoin in USD has compounded at an annualised growth rate of 131.5%. In comparison, the S&P 500 index of large cap US equities has compounded at an annualised growth rate of 14.5%. Clearly, the potential to gain on a crypto investment is a lot higher than traditional investment methods.
Cons
Potential of High Losses and Volatility
With high returns comes higher risk. The maximum monthly bitcoin return over the 60 months to end December 2020 was 76.1% and the minimum -37.6%. This shows that users will have to constantly check on their coins- as just as quickly can they make a massive profit, then can also plummet at the same rate. Users have to be able to time the market correctly to avoid major losses. This means that a lot of knowledge and research is needed before hand. Not only this, cryptocurrency aims to be used like you would a dollar. Imagine if you bought a coffee for $4 one day, and the next day the same cup of coffee cost $36…would you buy it? This extreme volatility means that it seems unlikely that crypto will be able to be used as actual currency anytime soon.
Legal Status
The legality of cryptocurrency varies country to country. Some countries, like Saudi Arabia, India, Bolivia and Algeria have all banned the use of crypto. There are many reasons why a country would ban digital currency; cryptocurrency cannot be regulated by the government. If a country wants to maintain financial control, of course they would want to ban it. Because of the anonymity of crypto (more on this later), it can be used as a method of money laundering or tax evasion, which is why some countries ban the use. Laws around digital currency are ever changing, which means that one day it could become illegal in your country, and all that money that you’ve made could be inaccessible.
Ethical Issues
Because cryptocurrencies have no official oversight or regulation, they are wide open to being exploited by criminals as a means to scam unwary investors. A 2019 study showed that 46% of bitcoin transactions are associated with illegal activity. Not only this, it has been proven that crypto is quite detrimental to the environment. Cryptocurrency blocks are added to the blockchains through crypto mining, where high-powered computers solve intricate mathematical puzzles. This technology takes a lot of energy to power these computers. Mining bitcoin now consumes more energy per year than the whole country of Argentina. Bitcoin’s emissions could increase the Earth’s temperature by 2 degrees. This brings to question the sustainability of this industry.
There are of course many more pros and cons to cryptocurrency, but there are too many to mention. Of course, if you want to know more about investing in cryptocurrency, please do your own research.
You may think that investing is not for you; maybe you’re not experienced enough, maybe you don’t have enough capital. But, the whole process of investing is not as scary as you think. Follow these simple tips and start investing successfully.
Start Before You’re Ready
This may seem counter-productive, but hear me out. Have you ever refrained from doing something, for fear of the risks? And then the thing you didn’t do, happened, and you regretted it? Hindsight is a fickle friend, so don’t miss an opportunity to start investing. Tackle your fear and start before you’re ready, because, to be honest, you will never be ready; “I’ll wait until next month…Let me do it after I’ve paid my bills…Maybe next year.” Take the plunge! If you don’t, you’ve already missed out on so much time you could have been investing.
Don’t Be Emotional
This point is crucial. You have to take all emotion out of investing, mainly fear and greed. If you see your investment plunging, your first response may be to sell, out of fear of losing even more. If you see stocks going up, you may want to buy before they go up higher, out of greed. Doing this eventually leads to buying high and selling low, losing you money in the long run.
Instead, take advantage of dollar-cost averaging (the concept of buying the same amount at regular intervals). This method makes your investment almost robotic. Another thing you can do as well, is to make your payments into your investments automatic. Set up GIROs or transfer straight away after you get paid, so that you don’t even think about it.
Plan Situations In Advance
Another great tip is to have a set of ‘rules’ before you invest, so that if X was to happen, you already have a Y. For example, if you have a target buy price of a stock in mind, stick toit and do not deviate. This forward planning also helps you take emotion out of investing and manages your fear and greed.
Use Volatility To Your Advantage
Volatility is inevitable with investments, similar to if you go to a theme park you know there will be rollercoasters. A quality of a true investor is being able to hold onto their investments through times of great volatility. Even though it’s scary when investments go down, it’s not permanent. Stocks do not permanently lose their value. Use times of volatility to define your objectives, focus on what stocks are trending and always remember to be prepared for these situations. It’s all part of the game!
Do Some Homework!
Learn about the world around you; politics, technology, science, all have an effect on the financial world. Read up on current affairs and look out for things that could affect the economy and stock markets. The more you read, the more you will start to see trends in the market. I recommend reading The Economist, Business Insider and Bloomberg.
Know What Kind Of Investor You Want To Be
There are two types of investors; passive or active. Passive investors invest in mutual and index funds. If you’re unsure what these things are, check out my article “Investing Terms You Need To Know”. Passive investors benefit from long-term growing financial markets. Their investments are managed by fund managers, shuffling their money around for them on a regular basis. I would consider myself a passive investor; I leave the experts to do their job and just put my money in these funds over regular intervals. This, along with dollar-cost averaging, helps me remove my emotion from investing.
An active investor has to be very committed, professional and knowledgeable in what they are doing. If you decide to be an active investor, do your research! Know which stocks you want to invest in and be prepared to keep an eye on them. Try to be robotic about it and apply the previous tips.
Have A Long Time Horizon
I’ve mentioned it before but an investor who holds onto their investments longer, usually benefits the most. While the stock market is often volatile over shorter periods of time, the economy generally grows year by year; the inflation rate in the US in 2010 was 1.64%. In 2021, it is currently 2.21%. While inflation rate is annoying in terms of making things more expensive, it is an indicator that the economy is doing well. A higher inflation rate means more spending, more demand for products and triggers more production to meet the demand.
This means that if you hold onto your investments for longer, you are avoiding short-term losses and in turn benefitting from the growth of the economy.
To conclude, no one can be the perfect investor (if that was the case we’d all be rich), but if you follow these steps you are more likely to make better choices and become a successful investor!
A few weeks ago, I wrote an article about the changes to medical insurance here in Singapore. If you haven’t read it yet, please go and have a read. As of April 2021, all insurance companies in Singapore will have to introduce a co-payment system; whereby the patient will have to fork out a portion of the hospital bill, which cannot be claimed or reimbursed.
So how do we tackle this problem? I will explore a couple of solutions here; long and short term.
Short-term Solution
To counteract the impact of losing some of your money to co-insurance and deductible on a medical bill, you can choose to include a hospital income plan to your insurance policy. This plan will pay you cash each day you are hospitalised and recovering at home, regardless of the cost of the hospital bill. This is a good way to fill the shortfall that you cannot claim, and it can be used for each time you are hospitalised. This is a quick and cheap option to save on that bit of cash.
Long-term Solution
Medical inflation increases year by year, and it is a problem that will not go away. Obviously, a hospital income plan can only go so far to counteract the rising cost of healthcare in Singapore. There are some ways in which you can prepare for a bit hospital bill in the long run.
Consider adding an extra plan to your insurance portfolio that is kept only for long term use and emergencies only. You can start by putting a small amount of your savings into a plan that will grow this cash for you at a better rate than the bank. Not only that, you can include insurance coverage in this plan. So, if the worst should happen and you are diagnosed with a critical illness or become disabled, you have a lump sum pay-out to supplement the cost of treatment, or help you with adjusting to your new lifestyle. No one likes thinking about these things happening, but it is best to prepare for the worst before you run into any problems. Hindsight is a wonderful thing, but it will not help when it comes to paying for a hospital bill.
I have posted a QR Code below to my WhatsApp should you have any questions or need help planning this out. If you would like me to review your current policy I would be more than happy to do that also.
As we all know, Singapore does not offer free healthcare; for locals, a lot is subsidised by their Medisave but for expats we must pay the full cost and wait for reimbursement from our insurers.
But there will be some new changes this year that all insurers in Singapore will have to follow, which will affect the consumer. Here’s what you need to know.
In March 2018, the Ministry of Health announced that insurers will have to stop offering plans that cover the full cost of hospital bills, and riders that do so will have to contain a ‘co-payment’ feature. This means that patients will have to foot part of their hospital bill, in order to keep healthcare costs sustainable.
From now on, if policyholders are hospitalised, they will have to pay 5% (at least) of the hospital bill. This co-payment is the government’s attempt to maintain policy premiums, and encourage responsible usage of the Singapore Healthcare System…doctors and patients alike.
So what can we, as a customer, do to ensure that we can keep up with these changes? The first is to double-check what your company provides in terms of insurance coverage, as company plans will often cover different things than personal. Second, ensure you have an accident plan that includes some medical reimbursement benefit. Therefore, if you are hospitalised due to an accident, you can claim somewhat off this plan. The third and, in my opinion, the best method is to ensure you have some sort of plan you can use as an ‘emergency medical fund’. Pay into this fund for a few years and, should anything happen, you can use this to cover the co-payment. It can also include features that will cover you should you become disabled, or suffer from a critical illness.
Have you readjusted your medical planning? Do you have any questions in regards to your insurance or future planning? If so, comment below or send me a message!
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I think it’s safe to say that no one saw Covid-19 coming. None of us thought that we would be unable to travel, unable to see our family and none of us would have foreseen so many people losing their livelihoods, their jobs, and their lives.
We may be lucky here in Singapore, but some were not so lucky. Those who lost their jobs have had to rely on their savings or may have even had to borrow money to stay afloat.
Although we could not have predicted 2020, there are ways that we can prepare for another blip in our financial prosperity. Here is what I suggest.
Manage your Debt
I feel like I’ve mentioned this already in previous articles but I cannot stress how important it is. When things go wrong, like losing a job for example, the monthly bills do not stop. Rent still has to be paid, the water bill will still have to be paid and, if you have debt, the monthly instalments don’t stop. That’s why it is imperative that you try and clear your debt or at least minimise your debt as soon as possible. That way, you can start focusing on other aspects of your financial life and focus on how you can grow money, not just how you can get through month to month.
2. Have an Emergency Fund
I really do sound like a broken record but, imagine if you lost your job and had no savings? You would either have to borrow money, or sell off your assets, neither of which are ideal. So, it is imperative that you are disciplined with keeping an emergency fund of at least 3 months of your salary. This money should be easy to access but not one that you dip into frequently. This fund should be for emergencies only, and used only when very necessary.
3. Have a Market Opportunity Fund
If you really want to take use of a market crash, it’s a good idea to have funds set aside for a market opportunity. This fund could be from extra savings each month from cutting your monthly expenses, or after managing your debt. You can then use this money for investing when markets are low. For example, buying stocks when they are cheap.
4. Be Disciplined With Your Investing
So, you bought some stocks cheap with your Market Opportunity Fund…now what? I would suggest making use of a term called ‘dollar cost averaging’. I have explained this term in my post ‘Investment Terms You Need To Know’. It is best to make your investing almost automatic; the same amount each month or year, so that you can weather the storm of market volatility. It means that you will earn more from your investments in the long run, instead of timing the market.
5. Diversify Your Investments
Look at what happened in 2020…the industries that were most affected were airlines, hotels, restaurants, bars and entertainment. People that had stocks in these companies could have lost a lot of money. Therefore, it’s best to diversify your investment portfolio so that you have a mixture of stocks, bonds etc in lots of different industries, to minimise the risk of loss.
6. Have a Side Hustle
My last point is really an optional one, to ensure that you never miss out on making money should another crash happen. Some people, like myself, are not able to have a side hustle (fyi because of my visa I cannot have more than one job). But, if you have a different skill or something that can be sold from home, it may be good to explore it further and monetise on it. For example, you may be very good at Photoshop or good at website design. These are services that you can sell and do whilst you are at home.
Follow these steps and not only survive but thrive in the next market crash!
People often ask me how I became so financially literate and what I did to make myself financially stable. So, I thought I would share with you how I planned my finances in Singapore. First of all, I will say, I’m very lucky to have parents who taught me from a young age how to save and be frugal. But, moving to Singapore I realised I needed to do more than just save. So here’s how I did it.
Step One: Have an Emergency Fund
This first step was crucial, as you will see in my story later why. I saved 6 months’ salary in my bank account, as a buffer should anything happen. This meant that rent was never an issue, even with putting a deposit on a new rental and moving apartments. It also meant that I had less buyer’s remorse and I knew how much I could afford to spend on my days off.
Step Two: Spend Wisely
Pre-covid, I travelled a lot. A lot of people, particularly those back home, would often ask me how I did it. It was really quite simple; I often travelled to countries where the Singapore dollar went far. I booked cheap accommodation and ate local food. This kept my budget quite low.
Also, in Singapore I don’t tend to buy a lot of things. I mostly spend on going out for meals or activities with friends, which I find easier to manage, especially if the restaurants are cheap!
Remember earlier I mentioned why an emergency fund is so important? Here’s why. In 2019 I found out I had to have an operation- it wasn’t a particularly big surgery, but it was a crucial one. My doctor had found a growth and was unsure if it was cancerous. It was causing me a lot of discomfort and affected my personal life greatly. I was told that the estimated bill would be roughly $19,000. Thankfully, I had health insurance. Even though foreigners have to pay the cost upfront, I managed to get every penny back through my hospital plan, even the doctor’s appointments leading up to the surgery. It was a massive relief. Luckily, I had the money upfront to pay, but can you imagine if I never got that back? Expats often see insurance as unimportant, maybe because healthcare is free back at home, but it’s a fact that Singapore is not a welfare state, so don’t treat it like one.
Step Four: Don’t Leave it Too Late
I went on to purchase critical illness coverage, as I knew deep down in the back of my head that having an operation at 25 (especially one where the C word comes up) is not normal. (I’m fine by the way, it wasn’t cancer.) So, I felt that it was best to be fully covered for critical illnesses. Hospital plans are not sufficient. Imagine if I were diagnosed with Cervical Cancer, and just had a hospital plan? It wouldn’t cover my change in lifestyle; having to take taxis everywhere; maybe hiring at home help; having to maybe order personalised meals. Not to mention the fact that I wouldn’t be able to work if I was going through chemo. A hospital plan definitely wouldn’t cover all of that.
Ok so I had an emergency fund, I was protected and covered insurance-wise. Now what? How did I make my money grow quicker than leaving it in the bank? My current DBS account has an interest rate of 0.005%…. I’m not being funny but that’s rubbish. So, I took a portion of my savings and invested it in unit trusts. I purchased investment policies that contained a mixture of sub-funds that are managed by portfolio managers. I’m not one to sit and watch stocks and manage that by myself, so I’m very happy to let a professional do that for me. This will help me achieve my long-term goals of purchasing a property and having a very comfortable retirement.
I pride myself on not living paycheque to paycheque; I actually can’t remember the last time I did live like that! I always reflect on these five things and review how on-track I am with my financial goals. I hope this helps those who are confused on where to start. How do you plan your finances? If you feel that you have any questions or need any help, please do get in touch.
Remember GameStop? That old shop where you would go to buy second hand video games? Well, yesterday they made big headlines…and here’s why.
Understanding a Short
A short position is a trading technique, whereby short-sellers will borrow a stock that they think will drop in price, and buy them back at this lower price. Short sales have an expiration date- which means that sometimes short sellers have to act fast.
A short squeeze occurs when the opposite happens; the stock sharply rises, forcing all those who predicted its downfall to buy to prevent even bigger losses. This inevitably drives the stocks even higher. Short squeezes can happen when there is an unexpected positive news story (like Tesla, for example), or anything that can excite new buyers.
So what does that have to do with GameStop?
In January 2021, a series of short squeezes ensued on several different stocks, including GameStop, AMC (remember, that cinema company?) and BlackBerry (everyone’s dream phone 15 years ago). Retail traders on Reddit page ‘Wallstreetbets’ banded together to drive the price of these stocks up, because they had found out that several hedge funds had short-sold them. This resulted in large price spikes, as the short-sellers were forced to buy back their stocks before incurring any more losses.
Many users saw this as a way of getting back at hedge funds for the economic crisis in 2008. (Side note, if you haven’t watched The Big Short- you should. It explains the property crash perfectly.) It was almost as if all these users had become vigilantes, taking on the Big Bad Wall Street. Some on the website even donated their earnings to charity- how Robin Hood-esque of them.
Robinhood; take from the rich give to the…rich?
What’s not so Robin Hood-esque is what Robinhood did. Robinhood is a stock trading app; on Thursday 28th Jan 2021 it announced that it would block trading of GameShop, AMC and Blackberry shares. The free stock trading pioneer only allowed clients to sell positions, not open new ones. This provoked outrage among users and US politicians alike. A class- action lawsuit accused Robinhood of market manipulation and there are calls for the company to be investigated. The Senate banking committee said it would hold a hearing into the volatility.
Many believe that this kind of move from Robinhood shows clear classism and bias in the financial world; that hedge funds in Wall Street can influence stock fluctuations, fat cats can reap the spoils of market volatility, but the average joe can’t. The users on Reddit merely played the short-sellers at their own game. What’s your opinion? Do you think that Robinhood was in the wrong? Or do you think that the stock market shouldn’t be manipulated by Reddit users?
Do you find that there are just too many financial terms to remember, putting you off even considering investing? Well, there is a lot, and at first glance it is definitely overwhelming. So, I have complied a list, a mini dictionary, if you will, of all thing’s money- from hedge funds to dollar cost averaging. At the end, a lot of these term won’t seem so formidable anymore, allowing you to start investing with a lot more confidence.
Stocks
The first word that everyone thinks of when they hear the term ‘investment’, is stocks. Hence, why it is first in this list. But what even are stocks? And how do they work? A stock, also known as equity, represents the ownership of a part of a company. Imagine a company is like a big pie, and you want a piece of the pie. You can buy a slice, known as a share, and essentially you own a small part of that business’ assets and earnings. (Do note, however, this does not mean you own part of the company’s furniture, building or whatsoever you choose).
Shareholders (people that own the stock) can vote in shareholders’ meetings, sell said shares to others and receive dividends- more on that later.
Stocks are bought and sold on stock exchanges, although some can be sold privately. Historically, stocks out-perform other types of investments, which we will delve into further later.
But why do companies sell stocks? Don’t they want the whole pie to themselves? Simply put, companies sell stocks to raise funds so that their business can operate.
Bonds
You may have heard of a bond before when the topic of investment comes up. A bond is a fixed income instrument that works similar to an I.O.U. It represents a loan made by an investor to a borrower- just like an I.O.U. Its details include the loan due date and includes the interest and terms for payment.
They are normally used by corporations or government entities to pay for projects. Imagine you are a contractor, wanting to build a block of flats. You need equipment, materials, not to mention staff to carry out the job. All this costs money, sometimes more than a bank is willing to loan. So, you can instead ask many investors to lend the money to you. This is a bond.
Like stocks, bonds can be bought and sold, publicly or privately. They pay out lower than stocks, but are a safer option; if you hold your bond until maturity (the date it was supposed to end), you will get all your principal back. Principal is the amount you paid in the first place.
Mutual Funds
All these different ways of investing can seem a bit confusing. And doesn’t it require a lot of time, sitting and watching how my stocks are doing? And how do I know which stocks to buy? Or even if I should just stick to stocks! Well, that’s where mutual funds come in. A mutual fund is a pool of money that can be invested in different investment types, such as stocks, bonds and money market instruments. They are managed by professional money managers, who will decide how much money goes into what, and will shuffle funds if necessary. This is a great investment vehicle for those who do not want to invest hands-on, or do not have the expertise to do so. Money managers will try to make profit based on the investment objective. However, remember that these managers will charge a fee for doing all this for you.
Hedge Funds
Hedge funds are very similar to mutual funds; they both are actively managed and both use a pool of funds to invest. However, they face less regulation than mutual funds, and sometimes use non-traditional investment strategies. They are more expensive than other funds, and are normally specifically for high net-worth investors.
Index Funds
The last type of fund I am going to talk about is index funds. These are a portfolio of stocks that are ideal for saving for retirement. They have cheaper fees and expenses than actively managed funds.
The term ‘indexing’ itself means passive fund management; instead of a fund manager picking and choosing investments, or deciding when to buy and sell, the fund manager will build a portfolio (a range of investments), which mirrors a particular index. The idea is that mirroring the stock market, the fund will match the performance. Nearly every financial market in existence has an index and index funds, the most popular index funds track S&P 500.
Overall, index funds are great for diversification (coming up) and offer strong long-term returns. But, beware, they are vulnerable to market swings and crashes and lack flexibility.
Diversification
This may be a common phrase that you have heard. The term ‘diversification’ is the opposite to ‘putting all your eggs in one basket’. If you decide to invest all your money into one stock, say from Company X, and the stock crashes, you have risked it all and lost all your money. However, if you invest in several different stocks, in Company X, Company Y and Company Z, and Company X’s stocks crashed, at least you would still have your shares from the other companies. What’s even better than this is if you spilt your investments between different types of vehicles, like bonds, stocks, commodities (such as gold). This way you are not solely relying on the stock market doing well.
Diversification is also why mutual funds and index funds are so attractive- your investment is spread out between lots of different asset classes. This massively reduces risk whilst aiming to maximise returns on investments. Diversification also includes geographical location. Investing 100% in a US market is less diverse than investing in US, Asian and European markets.
Managing a diversified portfolio, with assets from different classes and foreign markets can be confusing and time-consuming, which is why mutual funds are available for the layman to purchase.
Dividends
Some companies will offer dividends; the company will distribute some of its earnings to its shareholders. Dividends are the investors’ reward for putting money into the company. They can either be paid in cash, or in additional stock. They are non-guaranteed, so if the company’s profits slump, so will the dividends (this is unlike coupons, which are a fixed amount).
Dividends are good for those who have short-term investing goals and like to see the benefits of investing instantly.
Capital Gain
If you buy a house for $100,000 and sell it for $200,000, you have a capital gain as you have sold your asset for more than you bought it for. This goes for investments too. If you buy stocks and hold onto them, selling them a year later at a higher price, you have a capital gain. Many countries will tax capital gains the same as regular income, but will tax long-term investments less. This encourages long-term investments that benefit the country’s economy. If you wish to benefit from lower tax on your investments, a long-term strategy is better. One thing to note is that there is no capital gains tax in Singapore!
Risk
Life is full of risk, and so goes the same for investments. Every investor is tolerable to a certain amount of risk. If you are a high-risk taker, you are willing to take a risk for potentially a high return. If you are quite safe with your investments and invest in say a US treasury bond, then be prepared for lower returns. Generally, in finance, the greater the risk the greater the gain. However, this means that you might risk losing all your investment that you initially put in.
Risk is measured by historical behaviours, although historical behaviour is not indicative of future outcome. Below are some investment types, ranked from low to high risk.
It is generally thought of that low risk = low reward, high risk = high reward. However, there are some ‘hidden gems’ that are low risk with a high reward, these often are too good to be true. Any investment that is high risk, low reward, is generally not worth it.
Dollar Cost Averaging
This concept really is a life-saver for those who do not wish to time the market or sit watching their stocks. The idea is that by putting the same amount of money into investments for the same period (once a month, once a year), you will gain more in the long run than if you tried to time the market.
For example, you spend $20 a month on coffee for 4 months. In January, the value of the coffee drops to $5 each- so you get 4 coffees. In February, coffee is worth $4 each, so you get 5. In March and April, coffees are worth $2.50, meaning you get 8 each month. In total, you purchased 25 coffees for an average price of $3.20. If you would have spent all your money at the same time, you would have only bought 16 coffees, for an average price of $5 per cup.
This method reduces risk and reduces the overall impact of market volatility.
Compound Interest
We’ve come to the end of the list, and I’ve saved one of the most important ones until last. Compound interest is essentially interest on interest. Interest is added to the initial amount, and then also on the interest already earned. It makes any sum of money grow faster than simple interest, and is the beauty of investing. Money that you invest over time can compound interest either annually, monthly or any increment of time. There are many financial calculators online you can use, to see how your investment can grow over time. It’s not as simple as just multiplying your initial investment by the rate of return, as it takes into account all the interest gained over a set period of time.
I hope you have found this useful. By now you will know all the basic terms. The investing world is your oyster! Please share this with those you know who are keen to invest. Feel free to comment your questions below!
Everyone wants to make money, and more and more people are starting to realise that working a 9-5 is just not going to cut it anymore. But if you don’t have the luxury of running multiple businesses from home, or being your own boss, the easiest way to grow your money is to invest.
Investing is the concept of allocating assets, usually money, into different financial vehicles, such as stocks, bonds or mutual funds, to create a profit. The bare minimum investment should be doing is beating inflation. Inflation is a measure of the rate of rising prices of goods and services in an economy. In short, over time our hard-earned money is worth less, due to the rising cost of products. It sounds somewhat bleak, and with average inflation currently working at 2.5%, the chances of saving decent money in a savings account that offers 0.5% seems slim. But a lot of investments are offering high non-guaranteed returns, often from the rate of 8% upwards. But what are the three things to consider before you put your money into investments.
1.Build an Emergency Fund
At a glance investing may seem like an obvious choice when it comes to saving money. Why not just throw all your savings into investment if it means high returns? The answer is that investment returns are NOT guaranteed- even the safest investments come with some risk, and sometimes the lock in periods are high, or the penalty for withdrawing early is expensive. To ensure that you are not over-investing, make sure that you have an emergency savings fund that is easily accessible. That way, should an emergency arise (like a large hospital bill or having to pay for car repairs), you can use your emergency money instead of jeopardising your investments.
The recommended amount you should have in your emergency fund is 3-6 months of your monthly salary. This should be a healthy buffer should the worst happen. If you already have more than that, then that’s a great time to consider investing.
2. Be Debt-Free
Before you do any investing, you should really consider paying off your debt. Having a credit card bill is fine, but having any large or bad debt will hinder you in your long-term goals. It seems counter-productive attempting to make lots of money with investments, whilst paying off lots of debt. It may be difficult paying off student debt or large loans, but you will reap the benefits in the long run when your debt isn’t eating into your assets.
3.Set Your Investment Goals
This step may seem unnecessary but it is honestly THE most important step- defining your goals. What is the reason for investing? If you are doing it out of pure greed then your judgment will become clouded when it comes to riskier investments and you risk losing it all. So have a long and hard think about why you want to invest. You are putting your money, that you worked hard for, somewhere that could give you high returns, or give you nothing. Therefore, it’s best to have a long think and define some clear goals for your future. Do you want to plan for your retirement? Save for a house? Pass something on to your children? Whatever it is, decide how much you would need and by when. Most investments are a longer-term commitment, so it’s OK to think big. If you have no clue and are just investing for the sake of it, you will quickly lose your drive and passion for making money.
These steps may seem simple, but they really are the key to an effective investment strategy. If you found this article useful, comment below your favourite tip. Don’t forget to share it with your friends who are thinking about investing.
Investing for Singapore Expats 