A Singaporean’s guide to buying stocks
Stocks are an essential part of any retirement plan, and there are two reasons for this:
- Cash usually fails to keep up with inflation. Keeping all of your retirement savings in bank deposit is little better than stashing it away under your pillow.
- Globally, stock’s investment returns outperform bonds over the long-term.
So, if you aim to build up a significant retirement nest egg that takes the financial pressure off your children, get on with the task of investing in shares now. With this guide, you’ll find it less overwhelming than it seems.
Step 1: Get familiar with your investment trading platform
The investment trading platform you choose will have an impact on your investment experience. It allows you to execute trades, and typically offers a range of related services such as stocks research, safe-keeping of your shares if you are not using the Central Depository (CDP); and trade settlement.
A high quality investment trading platform has these characteristics:
- Fees and charges are reasonable for the service that you get;
- In addition to equities, you can buy and sell ETFs, REITs, structured products and bonds
- Beyond Singapore, you can buy and sell stocks from other countries
- It allows you to settle trades seamlessly through an accompanying multi-currency account feature
- You get research on stocks and industries, at no extra cost
- You get access to online tools to do your own stock analysis
- It has been around for a long time, and has a good track record of handling their clients’ trades efficiently and honestly
- It is backed by a reputable name with a strong credit rating.
Note: ETFs refer to exchange-traded funds; REITs refer to real estate investment trusts.
Once you’ve made your choice, be sure to understand the system, the trade terminology and processes. That will allow you to make full use of the platform’s features. (If you’re trying to figure your way around a Vickers Online Account, watch this video or download this user guide.)
Step 2: Pick somewhere to “store” your equities
Many trading platforms allow you to buy and sell stocks, ETFs, REITs, and bonds. Once you’ve bought them, they need to be safe-kept in a storehouse. Note that you’ll need to secure a space in this storehouse before you can make any purchases or sales.
So, when you purchase Singapore stocks, your holdings are safe-kept in this storehouse. And when you sell the stocks, they are transferred from to the buyer’s account, and stored in their storehouse.
Some trading accounts provide this facility through their ‘custody service’. This means that your investments are stored in their storeroom for you.
Others offer pure brokerage services, which means you’ll need a CDP account to store the Singapore stocks that you’ve bought. And if your broker aims for a seamless experience like Vickers Online does, they’ll help you with all the paperwork. One less step for you.
Step 3: Understand your investment mindset
Most investors will say that their end goal is "to make money". But what’s also important is ‘how fast’: are you investing to make money gradually, or quickly?
If you’re in for quick winnings, you could be setting yourself up for disappointment. However, if you're about building patient wealth over your life, with long-term goals in mind — your children's education, a comfortable retirement — let’s start.
In general, there are three kinds of players in the market: the long-term investor, the trader, and the victim.
The long-term investor: making patient money
They understand that stocks—and markets in general—go through cycles. There are ups and downs. They buy good stocks, at reasonable prices, and ride through the cycles.
Important: "Good" is the keyword here.
Understand the company you're buying into because a ‘share’ is sharing in a company’s performance. A "good" company has good earnings, a sound balance sheet, competent and honest management, and a business that will likely still be around and thriving in 10, 20, 30 years.
Pricing is a lot trickier. But while prices fluctuate through cycles, good companies tend to see their share prices go up… down… up… down… but along an upward sloping “dotted line”. This pattern of higher highs and higher lows is what the experts refer to when they say ‘mean reverting around a rising trend’.
The trader: out for a quick kill
Trading is about buying and selling frequently, in the hope that you make an overall profit.
The trader has to understand his skills, resources and limitations. If you have the time, the skill/experience, and the stomach for risk, by all means, take your fortunes in your own hands and trade.
But it's not easy. If it was, there would be many Paul Tudor Joneses (PTJ). PTJ is a chart-driven trader who made a fortune by short-selling ahead of the Black Monday Crash of 1987. He was estimated by Forbes Magazine as being worth US$4.7 billion in February 2017.
Plus, you may have family to think about when considering trading risks.
The victim: frightened by the markets
Then there are investors who enter thinking they're long-term investors but take fright at market declines and sell.
They are also tempted to buy into rapidly rising stocks, without understanding the fundamentals (or the lack of fundamentals) of those stocks. These are the victims of the trade.
That's a recipe for "buy high, sell low" disasters.
Remember, the correct version of the investment saying is “buy low, sell high”.
Step 4: Understand the online system, the trade terminology and processes
A watchlist provides a summary of a company’s balance sheet, and this allows you to analyse it easily. This type of analysis is known as “fundamental research”.
Here’s how you can build it using the Vickers Online trading platform:
- Search for the name of the stock you are considering..
- Click on the stock code and the stock will appear on your watchlist.
- Customise the fields on your watchlist to include information you want (or don’t want).
- Investors typically use dividend yield, EPS (earnings per share) and P/E (price to earnings) ratio.
- You can also check the bid and ask prices, and high and low prices for the day.
- You can even set price alerts on the Vickers app. This means you’ll get a ping on your mobile phone when certain pre-set prices are hit.
Step 5: Actually getting started
If you’ve survived till the end of this article and feel excited about learning more, congratulations! Here are more good reads to help you become a more confident investor.
But if it’s too much to do, these ready-to-go combinations can simplify things for you:
- ETFs: which simply attempt to mirror the broad market index
- Unit trust: managed by an asset management company with a good track record
- Invest-Saver: invest regularly into ETFs without timing the market
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