Singaporeans are known to be some of the world’s best savers.
A 2017-2018 household expenditure survey from the Department of Statistics showed that Singaporean households spent around $4,910 each month on goods and services, compared to the average household income of $11,800.
That translates to around a 58% savings rate.
As such, it’s no surprise to find Singaporeans with tens, if not hundreds of thousands in their bank accounts.
If you are one of those who managed to accumulate S$100,000, congratulations!
However, saving is just half the battle.
Simply squirreling away your cash in a low-interest savings account is insufficient to secure your financial future.
If you’re not investing your money, you are letting inflation eat into your spending power.
With that in mind, I’ve come up with a list of three things that will help you better manage your investment portfolio.
Divide your portfolio
While some professional investors advise having a concentrated portfolio of high-conviction stocks, the retail investor is better off with a highly-diversified portfolio.
From personal experience, a single position should not take up more than 5% of your entire portfolio.
Too often, I hear retail investors complaining of poor returns because a single large position has performed poorly, dragging the portfolio’s overall returns down.
Yes, a concentrated portfolio can produce outsized returns but the risk of poor returns or loss is exacerbated if just one big position goes wrong.
Even the best investors make bad bets, and if you’re just starting out, the chance of investing in an underperforming stock or bond is even greater.
Assess your risk appetite
Do not simply assume that just because one of your friends is fully invested in stocks, that means that you should be, too.
Everyone has their own risk appetite and unique financial goals and circumstances.
Your choice of asset class is also determined by your investment horizon and ability to take on risk.
A young investor with S$100,000 in the bank and no kids to feed should be able to take on more risk than a retiree who still needs to support one or more kids through university.
Only by considering your risk tolerance and ability to take on risk can you make more informed decisions on what to invest in.
Take your time
If you plan to avoid hefty management fees charged by unit trust providers, then it’s time to educate yourself on the basics of investing.
By managing your own portfolio, you can have more control over the investments you make and also minimise your expenses.
I cannot stress this enough: Be informed about the types of asset classes available, be it company stocks, real estate investment trusts (REITs), fixed income, or other alternative investment classes.
Learn about the pros, cons, expected returns and risks of each asset class before putting your hard-earned money into any investment.
Investors looking for a quick buck often rush in headfirst without doing sufficient due diligence.
What follows is regret as they may lose a huge chunk of their hard-earned money.
Get Smart: Ignorance can be very expensive
A final word of caution.
If you don’t know what you are doing, you could end up even worse off trying to invest your money than simply putting it under your pillow.
If you have the tendency to rash or uninformed decisions, I strongly advise you to invest in index funds, or ETFs, instead.
These passive funds mimic an underlying index and will provide you with the same returns as the market they are invested in.
Your $100,000 will be safer there rather than you losing it by dabbling in investments you may not understand.
If you’re nervous, confused, or worried about buying your first stock, then our latest beginner’s guide to investing can help. It’s easy to read yet packed with valuable insights. Download it for free today, and buy your first stock in the next few hours. Click here to get started.
Disclaimer: Royston Yang does not own shares in any of the companies mentioned.