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10 common misconceptions about investing

You’ve always wanted to start investing, but for some reason or another, stopped short of making that first trade. Maybe you feel that investing is too complicated, too risky, and requires a lot of time and money. We look at some common misconceptions about investing, and put them under scrutiny.

1. I can always start investing when I’m older

You could, but is there really a ‘right’ age? If anything, you should start sooner, rather than later because investing a small amount regularly for longer periods allows you to take advantage of reinvesting and compounding. With monthly investments of $200 accompanied by reinvestments of all earnings, even a modest growth of 2% per year would earn you over $11,000 in compounded returns over 20 years. By investing your money, any returns you achieve will go some way towards mitigating the effects of inflation so your money retains its value by the time you plan to retire.

Check out: Young Investor Account

2. I should invest when I’ve more cash

While having a larger sum of money from the start might allow for more investment options, shrewdly investing even modest sums can result in sizeable returns over time. Plus, bear in mind that you’ll also have more financial commitments as you get older, which might make setting aside a sum for investment equally challenging later on. Start small. There are lump sum investments that start at $1,000, or regular investments from $100 per month.

Check out: POSB Invest-Saver

3. Investing is complicated

A man talks to his financial advisor for guidance on investment decisions

While the range of investment options includes sophisticated and complex products, start with basic ‘plain vanilla’ products. Always make informed decisions. Start with investments you understand, be it unit trusts, equities or Exchange Traded Funds (ETFs), then educate yourself fully using a combination of online resources and speaking with a trusted financial advisor.

4. Investment is a long-term monetary commitment

While long-term investing allows you to benefit from the power of compounding and ride out short-term instabilities in the market, short- or medium-term investments allow you to take advantage of market opportunities and cash out in a couple of months or years. If liquidity is a concern, ETFs may be traded whenever the stock market is open and most unit trusts may be redeemed daily, freeing up cash when you need it. Depending on which point in life you are at, choose an investment that suits your needs.

5. My CPF will be enough to retire on

While mandatory CPF contributions can help to pad your available retirement funds, it is important to keep abreast of inflation and the increasing cost of living in Singapore. Prudent investment of available funds becomes an important tool in order to shore up against these threats to build a comfortable retirement nestegg. Don’t forget that life expectancy is generally increasing, which means that your CPF funds would need to stretch even longer.

Check out: CPF Investment Account

6. I don’t have time to keep an eye on the market

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With most of us constantly pressed for time (Singaporeans are the fastest walkers in the world!), the idea of having to constantly monitor an investment can be a turn-off. However, there are investment opportunities that allow you to take a more hands-off approach, using a buy-and-hold strategy. Investing in certain funds or stocks of blue-chip companies with a long-term view will allow you to monitor your holdings at regular intervals instead of responding to constant market fluctuations.

7. I don’t want to pay for high fees

The growth of retail investors has also meant that professional fees have become more competitive. Do some research on the rates from different fund managers to get a sense of the market rate before appointing one. And while you can cut the fees by adopting a DIY attitude towards research and analysis, understand that a paid professional may have access to specialised tools and research that would be out of your reach. Another approach is to look at the value you receive for the fee you pay. Some sales charges also include access to feature-rich digital platforms that allow you to make watch lists, comparisons, charts and price alerts, on top of delivering the latest market news and insights.

Check out: DBS Vickers mobile app

8. I want to invest only in brands that I am very familiar with

While investing based on your familiarity of a brand’s product may have certain advantages, there are also potential downsides. Depending on the industry, the fortunes of such brands may still be vulnerable to sudden movements in the market. The consumer electronics sector, for example, has seen numerous brands rise and fade based on consumer tastes and the ability of the company to quickly transform. Instead, be open to consider brands that may not yet be household names, but which have sound fundamentals and a clear business case. Before making any investments, be sure to conduct diligent research.

9. I don’t know enough about investing to be able to start

There is a wealth of investor education available for the diligent, which can easily engulf the novice investor. Instead of trying to tackle the mountain head-on, start off with the basics first by establishing your own financial needs and wants.

  • Myself: Learn how to identify your risk profile and risk appetite
  • Money: Identify what your budget, available capital for investment, and financial goals are
  • Time: Consider how long you want to stay invested

By getting the basics sorted, you’ll be able to be targeted in your investment direction, and then gain familiarity with different products: unit trusts, cash equities and Exchange Traded Funds (ETFs). It does take time, but the results are worth it. Speak to a trusted wealth advisor or attend courses.

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10. My home is my investment

A young couple play with their baby in the comfort of their home

While the property market may have cooled since the introduction of restrictions by the government, Singaporeans have historically been drawn towards investments in property, either as an investment, or for their own-stay requirements. However, while property has the capacity for generous capital gains during up-cycles of the market, downturns in the market or changes in regulation can result in a depression in prices. Plus, unless you intend to downgrade to a smaller property upon retirement, property as an asset is illiquid and can be hard to dispose of, especially at the point in time when your financial situation changes.

To conclude, it is important to understand your financial situation, goals and investment approach and learn about the fundamentals of investing so you can take concrete actions to start on your journey.

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