We get it, not everyone has $100,000 to sink into a well-diversified portfolio. But you have to start somewhere, or you’ll never be in that position. The good news is that you live in one of the world’s biggest financial hubs, and there are products that cater even to those on modest incomes. Here are a few things to look at:
1. Blue chip investment programmes
There are two participating banks we know of (OCBC and POSB) that offer blue chip investment programmes. For a minimum monthly sum of just $100, you can direct the bank to buy as many shares of a given company as you want.
For example, if you set aside $100 and ask for DBS shares, you will get 100 shares if the price is $1 per share. If the price is $2 per share, you will get 50 shares, and so on. You can buy and sell these shares as per normal, and you will also get dividends if they are paid out.
As a side bonus, this results in dollar cost averaging. You will get more shares when the price is lower, and thus profit more when the prices of those shares rise again.
Of course, you will still need to be savvy in picking which blue chip shares you want. Like us on Facebook for tips and updates.
2. Build your own portfolio
The Singapore Exchange (SGX) has reduced lot sizes to 100. In the past, we had to buy in lots of 1,000. So if the share price is $3 per share, you can get invested for just $300 instead of $3,000.
Thanks to smaller lot sizes, you can now get started investing earlier. It’s also easier to start building your own portfolio, which would mean not having to pay management fees. We have some easy, basic courses that can get you started.
However, do be wary of transaction charges. If you are buying in small lots, we advise you to check if there is a minimum transaction charge (some brokerages charge an absolute minimum of $25 per transaction).
3. Check out the corporate bonds
In May this year, the Singapore Exchange (SGX) started offering more bonds to investors. This is largely thanks to the Monetary Authority of Singapore (MAS) creating a bond seasoning framework. If you don’t know what that is, don’t worry – suffice it to say it makes bonds available “over the counter”.
Previously, corporate bonds in Singapore were mostly for the wealthy. They had high minimum investment amounts, sometimes to the tune of $200,000 or more. Now, however, you may be able to find these bonds for smaller amounts like $1,000.
While it probably won’t appeal to younger investors, those in their 40’s or older may want to check them out. Bonds can be useful to older investors, who need to emphasise wealth protection rather than growth.
Of course, you still need to do you due diligence on the company offering the bond to avoid a financial debacle like the Swiber bonds.
4. Straits Times Index Fund
The ST Index Fund is a partial replication index fund, which tracks the top 30 blue chip stocks on the Straits Times Index.
Some investors may choose to forego picking which blue chips they want, and just have their money spread across the top 30. This is what the ST Index fund does, and it permits for easy, cheap diversification. This fund has been something of a darling in the eyes of Singaporean passive investors, and many will swear by it.
However, note that it has some limitations. Because the top companies are primarily dominated by banks, the ST Index Fund could be a little more tied to movements in the finance sector, compared to other industries.
5. Singapore Savings Bonds
We’re a little hesitant to point out Singapore Savings Bonds (SSBs) as an “investment”. These bonds produce returns of between two to three per cent (tied to Singapore Government Securities) when held to maturity (10 years). That’s uncomfortably low, particularly if you mean to use it for a retirement fund.
However, older Singaporeans will find it preferable to fixed deposits and will enjoy the relative safety of the asset. It’s also quite flexible for a bond, as 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.
At a minimum of just $500, SSBs are designed to be an affordable option for the average Singaporean.
6. Just move money into your SA
As a last resort, if you’re too lazy to try any of these, you have your CPF Special Account (CPF SA). Assuming 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.
This will give you an interest rate of up to five per cent, and it’s so safe you can’t even lose it in a divorce. Sadly, it’s also so safe you’ll never be able to touch it, until you retire and it slowly pays out till you’re 90. But there’s a lot to be said for having stable income when you’re older.