Affordable ways to start investing

If you’ve only got a minute:

• With regular savings plans and lower minimum lot sizes, investments are more accessible than ever as you do not need large sums of money to get started.
• Bonds have become more accessible to all with the Singapore Savings Bond providing a lower entry point for investors.
• Topping up your SRS or CPF gives you tax relief benefits.

One of the main roadblocks to getting started on investing is the idea that you first need a substantial amount of cash. While this is a misconception, it isn’t uncommon to hear. In all fairness, not everyone has S$100,000 on hand. But the good news is that you don’t need anywhere close to that amount to get started.

Investing is said to be a milestone of adulting. Afterall, unless we went to business school or attended finance classes, few of us would have thought about investing for ourselves. It’s intangible: You can’t sniff it, touch it, or hear it.

There are many affordable ways to invest today but before getting started, it helps that you should first have the following before getting started on investing:

• 3 to 6 months of emergency savings
• An insurance plan(s) in place
• Good grip over your debt (i.e. ability to pay all monthly loan payments on time)

If you have already done all that, here are 6 affordable ways to get your start in investing.

Singapore Savings Bonds (SSBs)

SSBs are both issued and backed by the Singapore Government. This bond is considered virtually risk free as it is backed by the Singapore government and given a strong credit rating by international credit rating agencies.

Some key features of SSBs include having a 10-year maturity, which includes step up interest rates. This means that the longer you hold your investment, the higher your coupon payments.

One of the other big selling points of investing in SSBs is the flexibility - you can cash out any month without losing the accrued interest. This makes up for the fact that, unlike corporate bonds, SSBs cannot be sold on a secondary market.

SSBs usually produce returns of between 2% and 3% (tied to Singapore Government Securities) when held to maturity (10 years). In the recent months, subscription rates have also been rising along with rising interest rates.

At a minimum of just S$500, SSBs are designed to be an affordable option for the average Singaporean.

Index investing

Index investing refers to investing in exchange-traded funds (ETFs) and to a lesser degree, unit trusts, which aim to match the performance of the underlying index as closely as possible.

This is one of the easiest ways to get starting on investing as ETFs give you diversification at a friendly entry cost.

Taking the example of ETFs tracking the Straits Times Index (STI), investors are able to invest in an investment product that tracks the performance of top 30 blue chip stocks in Singapore.

Investing in ETFs in Singapore has been made more accessible as the Singapore Exchange (SGX) has since, 17 Jan 2022, lowered the board lot size of SGX-listed ETFs to 1 unit. Thanks to smaller lot sizes, you can now start investing earlier. It’s also easier to start building your own portfolio, which would mean not having to pay management fees to professional asset managers.

However, do be wary of transaction charges. If you are buying in small lots, check if there is a minimum transaction charge (some brokerages charge an absolute minimum brokerage fee per transaction).

Regular savings plans (RSPs)

RSPs let you invest small sums of money on a regular basis. Many RSPs including DBS Invest-Saver give you exposure to blue-chip stocks and bonds through pooled investment products (i.e. ETFs and unit trusts) for a minimum monthly sum of just S$100.

With RSPs, you set aside a pre-determined amount for investment each month. It is similar to the concept of regular savings, but these savings are channelled into investment products instead.

RSPs use dollar-cost averaging – where your money buys more units when prices are low and fewer units when prices are high – to better protect you from the volatile market swings.

Robo-advisors

Robo-advisors are digital platforms that provide automated, algorithm-driven investment services with little human intervention.

If you are looking to make a lump-sum investment, you may want to consider DBS digiPortfolio. With this robo-advisor, you can access ready-made portfolios that cater to your investment needs from as little as S$100.

Investing through SRS

The Supplementary Retirement Scheme (SRS) is a voluntary scheme that helps you to better prepare for retirement where Singapore citizens and permanent residents can top up to S$15,300 per year.

Contributions to SRS are eligible for tax relief, investment returns are accumulated tax-free (with the exception of Singapore dividends), and only 50% of the withdrawals from SRS are taxable at retirement.

As uninvested funds in SRS accounts only earn 0.05% each year, it is worth your while to consider investing those funds before withdrawing them when you turn 63.

Your SRS monies can be used to invest in a variety of investment products including stocks and bonds (including SSBs) along with a range of ETFs and unit trusts.

Top-up your CPF Special Account (CPF SA)

If you are really not keen on investing or do not have the confidence to start just yet, fret not! You can still make top-ups to your CPF Special Account (CPF SA).

If you have sufficient cash in the bank to make the down payment on your flat, and to pay the mortgage, you can move money from your Ordinary Account (OA) to your SA.

You may also choose to top up your CPF SA (up to a maximum of S$8,000) under the Retirement Sum Topping-Up scheme and enjoy tax relief at the same time. This will give you an interest rate of up to 5%. And your funds are held for you by a government with the highest/strongest credit ratings available from a number of international ratings agencies.

But you will only be able to access the funds above the full retirement sum at age 55 and for the full retirement sum, it will allow you to be enrolled into the CPF Life Scheme where you will receive a monthly payout for life.

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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.

All investments come with risks and you can lose money on your investment. Invest only if you understand and can monitor your investment. Diversify your investments and avoid investing a large portion of your money in a single product issuer.

Disclaimer for Investment and Life Insurance Products