If you do not invest your money or are just starting to make the leap from being a saver to become an investor, you might be hesitating based what you have read or heard about investing.
Here are 3 myths of investing that are actually true!
Myth #1: Investing is Not Easy
It is true. Financial institutions and money regulators do not make it easy for newbies to start investing. Financial education is also not taught in school.
While it is not necessarily easy, it does not mean it cannot be made simple. After all, anything is simple once you know how.
That was the reason why this website for created and “How to Invest in Singapore Made Simple” was written.
There are three hurdles that a new investor has to overcome that can all be solved with a bit of knowledge and education (which is readily available online).
1) Knowing and Setting Up All the Required Accounts and Procedural Aspects of Investing in Singapore
In order to invest in Singapore, you will need to set up a couple of accounts including a bank account, trading account, CDP account as well as the optional CPF investment account and Supplementary Retirement Scheme account.
The Good News: Everything you need to know about setting up accounts is detailed here.
2) Knowing Which Financial Assets and Securities to Invest In
Common financial assets and securities available in Singapore for the retail investor include Cash, Stocks, Bonds, Unit Trust/ Mutual Funds, Exchange Traded Funds (ETFs), Real Estate Investment Trusts (REITs), Gold, Investment-Linked Insurance Policies, Structured Deposits and Alternatives.
Choosing the right security, such as a stock, to buy requires skill and experience to analyze the security. To know whether a stock is a potential good pick, investors analyze a stock or company using methods known as Fundamental and/ or Technical Analysis.
The Good News: If you are a new and/ or passive investor looking to invest for the long term (10 years or more), you do not need to worry about individual stock picks to build a passive investment portfolio.
Learn how to create a passive investment portfolio in Singapore here.
3) Overcoming Your Personal Investing Mental Barrier
This might be the biggest hurdle for new investors and it is understandable. It is reasonable to be hesitant about handing over your hard-earned money over when there is risk involved. However, risk can be mitigated with the correct investment strategy.
For all the stories you hear about investors losing their money to investment scams or bad investments, there are hundreds of thousands more who are making money through their investments. The difference between the successful and unsuccessful investors? Education and the level of greed (to a certain extent).
The Good News: Here is an effective tip for overcoming your personal investing mental barrier with your first investment.
Myth #2: You Need Money to Invest
It is true. You do indeed need money to make money.
BUT, you do not need hundreds of thousands or tens of thousands to start investing. You can start building your portfolio bit by bit, a few thousand dollars at a time.
Several banks also offer a monthly investment plan such as such as POSB’s “Invest Saver” and OCBC’s “Blue Chip Investment Plan”. These plans allow you to invest as little as $100 monthly in selected stocks and ETFs, including blue chip stocks (large, well-established and financially sound company that has operated for many years).
A stock broker, Philip Securities, also offers a “Share Builders Plan” which is a monthly investment plan for a specified list of securities.
So, don’t use a lack of big money as an excuse to not invest.
Myth #3: Investing is Risky
Investing is risky. But so is driving a car or even cooking in a kitchen surrounded by sharp utensils, flaming stoves and boiling water. But, these are things you do daily because you have learnt to be careful and how to mitigate risks.
You can lower your risks in investing by following two fundamental rules:
Rule #1 – Do Not Invest in What You Do Not Know or Understand
One of the fundamental rules in investing is: “Do not invest in anything you do not understand”. Even the most seasoned professional investors follow this rule.
Think about this way: Would you lend your hard-earned money to someone you do not know? You might give money to someone you don’t know as a form of charity but it is highly unlikely you will lend someone money with the expectation to get your money back, let alone with interest.
However, do not abuse the rule. Not understanding is not an excuse for not ever educating yourself and learning how to invest. The purpose of the rule is to ensure that you do not make investments that have little chance of doing well or worse, be fall prey to investment scams.
Rule #2 – Do Not Put All Your Eggs in One Basket
The academic term for this is known as “diversification”.
No one in the history of the world has lost all their money if they diversified their investments.
Any time you read of people losing all their money, life savings and/ or CPF savings, it is because they invested all their money in a bad investment or scam.
However, if you limit just a portion of your portfolio to any one investment (may it be a stock, bond, mutual fund or ETF), it is virtually impossible to lose all your money (unless the financial world comes to an end).
Just Do It
If there is one simple thing that you should do after reading this article, it is to take the next small step to take the leap from being a saver to becoming an investor.
Start with this website and you will have all the information and tools that you possibly need to start passive investing even with a modest sum of money.
Investing can be daunting. So, learn what is the first investment you should make to get over your personal investing mental hurdle HERE.