Q: We’ve sold our HDB flat in Bishan and have moved into a condo. We have some cash available and would like to start investing. We are in our early 40s with a young child. What are our options?
Congratulations on starting your investing journey. To decide which investment options are suitable for you and your family, there are a few questions you would need to ask.
• What is the purpose of your investment?
• How long can these assets be invested for?
• Do you already have savings set aside for a rainy day?
• How stable is your employment income?
• What is the volatility you and your spouse can stomach?
These questions should help you understand your risk profile and subsequently think about an optimal mix of assets that will be suitable. You can divide your funds across various investment options according to your requirements. Below are some non-exhaustive options you may consider.
1. Fixed deposits. These are extremely low risk in terms of capital preservation. These are essentially deposits you put with a bank for a committed period of time in return for a stated interest. Given the low risk, the interest is also quite low although still higher than the interest you can get from your savings or current account.
2. Singapore Savings Bonds. These are also a low-risk investment option that are highly liquid and with slightly higher interest compared with fixed deposits (though this may depend on economic conditions).
These bonds are offered by the Singapore Government and have maturity of up to 10 years. The initial interest may be low but it steps up as time progresses. One upside is that there is no penalty for early withdrawal.
3. Shares. You can open a brokerage account to trade shares. You would need to do your due diligence before deciding which company's shares to invest in. Share prices can be quite volatile and thus the risk involved can be quite high.
It is also not advisable to put all your cash into the shares of one company (or even just a few) as there is a possibility of losing all your money if the company folds. Thus, you need to monitor your portfolio carefully.
4. Unit trusts. Another way to invest in the stock market is through a unit trust or fund. You can also invest in bonds through a unit trust. When buying a fund, you pool your money together with other investors and a professional fund manager manages the investing. You can buy a unit trust through a financial adviser attached to a financial institution or online provider.
5. Exchange-traded funds (ETFs). These funds buy into a portfolio of stocks. Unlike unit trusts, they are funds that you can trade directly on the stock market, and are more flexible compared with unit trusts.
6. Robo-advisers. You can also open an investment account with a robo-adviser which would recommend an investment portfolio for you based on your risk profile (through algorithms). The recommended portfolio is usually a basket of ETFs.
• Angie Low is an associate professor at Nanyang Business School, Nanyang Technological University.