Feeling overwhelmed by the multitude of investment options? Don’t fret as you step into adulthood. We’ve got you covered with practical alternatives that are tailored to your situation. Unlike generic advice that assumes you have ample resources, such as corporate bonds or a luxury car, these suggestions will provide you with actionable steps to start building your investment portfolio.
First and foremost, let’s address how to begin creating a portfolio. To trade in the Singapore Securities Market, you’ll need a CDP account, so make sure you have that set up. Once that’s sorted, it’s crucial to determine your investment goals. “Having more money” is not a goal in itself. Instead, set specific objectives such as saving $200,000 before the age of 35 to purchase a condo or aiming for a monthly income of $4,500 during retirement at 67. Your goals should include a specific amount and a defined investment horizon. Without clear objectives, your investment journey will lack direction, much like a football game without goalposts.
Seeking guidance from a financial planner is an excellent way to plan your investment strategy, considering that each person’s approach will vary. Financial goal planning for a 27-year-old with a family to support differs significantly from that of a 20-year-old with different priorities. However, for simplicity’s sake, here’s a step you can take right away: Calculate the monthly amount you desire after retirement. Suppose you aim for $1,750 per month. That amounts to $21,000 per year, which you may need between the ages of 65 and 90. Therefore, a rough estimate for the accumulated sum before retirement would be around $525,000. This figure can serve as your initial investment goal.
Now, let’s delve into the process of building your investment portfolio:
1. Determine your affordable investment amount
Before diving into stocks and mutual funds, it’s crucial to assess what you can afford. Imagine depleting your savings to invest and then encountering an unexpected emergency. You might be forced to liquidate your investments, disrupt your plans, and potentially lose money. It’s advisable to (1) establish a savings cushion, equivalent to around six months of your expenses, and (2) pay off high-interest debts, such as credit card balances. Once these foundational steps are in place, calculate a comfortable amount that you can allocate to investments each month. As a student, your income might vary, so it’s essential to choose investments that accommodate this variability.
2. Choose your investment approach
There are three primary approaches to building and managing your portfolio. The first is a passive approach, where someone else handles your investments, such as a financial advisor or a robo-advisory service. While this option entails fees, it allows you to focus on other aspects of your life without constantly monitoring the market. This route is commonly preferred by students due to the demands of their studies. The second option is a DIY approach, where you actively manage your investments. While this may save you fees, there is a risk of making mistakes and losing money. It’s crucial to recognize that real financial markets often test you before you’ve fully learned the lessons.
As you gain experience, your results may improve, but expect to learn from the mistakes you make. The third option involves a mix of both approaches, allowing you to have control over certain investments while utilizing professional services for others.
3. Determine your asset allocation
A diversified portfolio is essential to mitigate risks. It’s unwise to invest all your funds in a single asset. For instance, a typical asset allocation for someone in their 20s might include 70-80% stocks (REITs, ST Index Fund, Equities-based Unit Trust Funds), 10-15% fixed income securities (vanilla corporate bonds, Singapore Savings Bonds, voluntary CPF top-ups), and 5-10% cash (savings account with good bonus tiers or accumulated cash). Keep in mind that this example serves as a general guideline, and it’s advisable to consult a professional to devise an asset allocation tailored to your unique circumstances.
4. Understand portfolio rebalancing
Building your portfolio is not a one-time task; it requires periodic review and adjustments. Over time, the value of different assets within your portfolio may shift, leading to an imbalanced allocation. It’s crucial to rebalance your portfolio every six months to maintain your desired asset allocation. Additionally, as you age and approach retirement, your asset allocation may need to be adjusted, but that’s a consideration for the future.
Start Early: The sooner you begin investing, the greater potential for wealth accumulation and the lower overall risk to your portfolio. Even if you can only allocate a few hundred dollars from your allowance, it’s a valuable start. Consider investing through programs like the POSB Blue Chip Investment Programme or explore affordable options such as Real Estate Investment Trusts (REITs) and Unit Trust Funds.
Remember, building an investment portfolio requires patience, continuous learning, and periodic adjustments. By taking these steps and starting early, you lay the foundation for a potentially prosperous financial future.
If you are you eager to learn about investing while simultaneously earning an income? Look no further! By becoming a student / part-time insurance agent in Singapore, you can delve into the world of investments and take advantage of a lucrative opportunity. This unique role allows you to grow your financial knowledge while helping others secure their financial future.