How to Invest Money in 5 Steps

Investing early is a cornerstone of long-term financial growth and wealth creation. Even starting with small, manageable amounts can set you on the path to financial success. The power of compounding, where your earnings generate further earnings, allows your investments to grow significantly over time. For beginners in Singapore, various accessible platforms make it practical to enter the investment market and begin building a secure financial future.

This guide will walk you through the fundamental steps of investing, empowering you to take control of your finances and achieve your financial aspirations.

Defining clear investment goals is the cornerstone of a successful investment strategy. For Singaporeans, these goals can be tailored to specific needs and aspirations. You might be saving for a down payment on your dream HDB flat, planning for a comfortable retirement through your CPF, or building a fund for your children's education. Here's a breakdown of how to categorise your goals:

• Short-term goals: These are typically achievable within 1 to 5 years and might include saving for a wedding, a car, or a home renovation. Investments for short-term goals should prioritise safety and liquidity, allowing you to access your funds when needed.

• Long-term goals: These extend beyond 5 years, often spanning decades, such as retirement planning or funding your children's university education. Investments for long-term goals can generally tolerate more risk to potentially achieve higher returns.

The level of involvement you desire in managing your investments is a crucial decision.

If you prefer to have full control over your investment decisions, you can opt for a self-managed portfolio. This involves choosing individual stocks, exchange-traded funds (ETFs), or other investment instruments and executing trades through online brokerage platforms like Tiger Trade or Saxo Markets in Singapore. The pros include greater control and potentially lower fees, but the cons include the need for extensive research, active monitoring, and the risk of making uninformed decisions.

For beginners or those who prefer a less hands-on approach, robo-advisors in Singapore offer a convenient alternative. Platforms like StashAway, Syfe, and AutoWealth use algorithms to build and manage diversified portfolios based on your risk tolerance and financial goals. The pros include ease of use, lower fees, and automated portfolio management, but the cons include less control over specific investment choices.

Different investment options require different types of accounts. Here's an overview:

If you’re investing for retirement:

• CPF investment accounts: These accounts allow you to invest your CPF Ordinary Account (OA) and Special Account (SA) savings in approved investment products. This can potentially enhance your retirement savings, but it's crucial to understand the regulations and risks involved.

• Supplementary Retirement Scheme (SRS): The SRS is a voluntary savings scheme designed to encourage individuals to save for retirement. Contributions to the SRS are eligible for tax relief, and the accumulated funds can be invested in various approved investment products to grow your retirement nest egg.

>> MORE: View our list of the best robo-advisors

If you’re investing for another goal:

• Brokerage account: This is a fundamental account that allows you to buy and sell securities like stocks, bonds, and ETFs. Taxable brokerage accounts offer flexibility and a wide range of investment options, but you’re responsible for managing your investments and paying any applicable taxes on your gains.

>> MORE: View our roundup of the best brokerage accounts

Opening an investment account is now a streamlined process. You can easily open accounts online through SingSaver's platform or directly with popular robo advisors and brokerage firms in Singapore, such as StashAway, Syfe, and DBS Vickers. The process typically involves verifying your identity using SingPass or other identification documents and funding your account through local bank transfers or other convenient methods.

Before you jump the gun and invest in something in hopes of making money fast, it's essential to understand the different investment options available, how they work, and their associated risks and potential returns.

• Stocks: As a type of mutual fund, stocks represent ownership in a company and offer the potential for high growth but also carry higher risk.

• Bonds: Debt securities that pay fixed interest, generally considered lower risk than stocks.

• ETFs: Exchange-traded funds that track a basket of assets, offering diversification and lower risk than individual stocks.

• REITs: Real Estate Investment Trusts that invest in income-producing properties, providing potential for regular income and capital appreciation.

To help determine your risk tolerance, consider using tools from robo-advisors. For both small and large investment sums, diversifying your portfolio across different asset classes is crucial for managing risk and achieving long-term financial stability, regardless of how frequently (or infrequently) you make daily investment decisions.

ETFs are similar to mutual funds in that they hold a basket of assets. However, ETFs trade on stock exchanges like individual stocks, offering greater flexibility and liquidity. They often have lower expense ratios than mutual funds, making them a cost-effective investment option for beginners in Singapore.

» More: Beginners guide to investing in ETFs