A Singaporean Guide: Where To Invest $10,000 Right Now?
What have you been doing with your monthly salary?
If you have been diligently following the 50/30/20 rule on allocating your salary where:
- 50% for expenses
- 30% to be set aside for wealth growth and investment
- 20% goes into savings
Then congratulations. You’re on the right track.
For reference, the median household income per household member is $2,792. That amount is also close to what most fresh graduates might be looking at for their first job.
Assuming you stick closely to the budgeting percentage of 30% for wealth growing. You should have easily saved slightly more than $10,000 after 13 months.
Recently, we asked some of the most established professionals and individuals in the booming Singapore internet finance scene the million dollar question: Where will they invest their “first” $10,000?
Bookmark this article because we will constantly update it with perspectives from more of your favourite speakers, bloggers, and personalities from the personal finance scene.
Brace yourself, as it’s going to be a helluva ride!
Editor’s note: We cannot stress enough how important it is to do your due diligence before investing, and the fact that whatever is shared here is NOT to be taken as investment advice.
For the more pedantic individuals questioning, “What exactly is ‘do your due diligence’?!” Well… If you’re the type to blindly follow whatever you read off the internet and throw money at it… *sigh* Let’s just say that the world’s a much harder place… So it really pays to have a healthy dose of scepticism.
2018 ended badly for the indices – the Strait Times Index (STI), Hang Seng Index (HSI), and S&P 500 all closed the year at 10.3%, 14.3%, and 9.6% down respectively due to the ongoing trade war crisis between China and the United States.
In times of uncertainty like this, it normally increases the number of opportunities to invest in the market as stock prices fall.
However, the markets have recovered quickly from this mini-crisis. In 2019, the major indices have already bounced back to their pre-trade war valuations, reducing the number of opportunities to invest in right now.
Where To Invest $10,000?
Since the markets have somewhat recovered, the question is: Where would I invest $10,000 right now?
If you’re new to investing, I think it’s important to start with something safer like investing in an index ETF while you are still learning how to analyse and invest in stocks.
In general, market indices tend to rise over the long run because the nature of an index like the S&P 500 always means the top 500 companies in the U.S. are always represented.
If a company isn’t doing well, it will eventually be replaced by a new, well-performing company ready to take its place.
I mentioned that the markets have somewhat recovered because if you look at the STI and HSI right now, they are trading at P/E ratios of 13.2x and PE 11.3x respectively.
Based on those valuations, the STI and HSI are still trading below their long-term average P/E ratios of 15x.
Of course, no one knows where the STI or HSI will be in the next year or two, but knowing that market indices usually rise over the long term and that they’re trading below their long-term averages gives you a decent margin of safety.
And of course, you cannot buy the STI or HSI directly. But you can buy a fund that mimics the index – the index ETF. When searching for the right index ETF to invest, I usually go for the lowest-cost index because saving on fees will make a big difference to your portfolio over the long term.
For the STI, I would go for the Nikko AM Singapore STI ETF because they have lower fees compared to SPDR STI ETF (though the latter is more liquid). For the HSI, I would look at the Tracker Fund of Hong Kong which has a low expense ratio of just 0.09%.
So if I had $10,000 right now, I will probably allocate $2,000 each to the Nikko AM Singapore STI ETF and the Tracker Fund of Hong Kong.
With the remaining amount, I would put it in Singapore Saving Bonds (SSBs) to earn some interest while waiting for opportunities.
The good thing about SSBs is that your capital is protected and there are no penalties for redeeming your bond early. All you need to give is a one-month notice.
Investing is a game of probability. Not every stock that you pick will turn out to be a winner.
But if seven out of ten stocks you pick make you money, you will do very well. Of course, to ensure that the profit your seven stocks make is always more than the losses of your other three stocks, you have to invest in each of your ten stocks equally.
For instance, if seven of my equal-weighted stocks gained 50% and the other three lost 50%, I would still come out positive overall. However, if I invested 60% of my portfolio in three stocks (because I was somehow super-confident about them) that lost half their value (but ultimately wrong), the gains from my other seven stocks wouldn’t be enough to cover my losses. For that reason, I prefer to weigh my stocks equally.
Therefore, out of $10,000, if invested $2,000 each in the Nikko AM Singapore STI ETF and Tracker Fund of Hong Kong, I would still have $6,000 left over to allocate equally into three more stocks down the road if I planned to hold a total of five positions in my portfolio.
Victor Chng and Rusmin Ang conduct a slew of investment-related (with a focus on REITs, growth, and income stocks) courses at The Fifth Person.
The poet Homer tells a mythological tale of two sea serpents that were located on opposite sides of the Sea of Messina that were given the names Scylla and Charibdis. This is the way Ancient Greeks speak about choosing between two great evils.
Singapore Millennials face a stark choice: If they are not academically inclined and forego having a local degree, having a diploma means having a 40% probability of joining the gig economy and having a job that only pays you proportionately for the work you do. While those with degrees may find regular employment easier to obtain in their 20s, they are likely to face a moment of reckoning much later in life.
In 2018, PMETs with degrees in their 40s are prime targets for retrenchment exercises.
Therefore, in the best case, a Millennial has about 15 years to make good with their investments before their career begins to fade.
Is $348,752.20 At Age 40 Enough?
If we invest at 8.87% returns ( which was representative of the STI ETF for the past 10 years up till December 2018 ) by setting aside $1,000 a month, a Millenial who starts work at 25 can accumulate about $348,752.20 at age 40.
This is hardly enough to generate enough dividends to pay for their monthly expenses as the STI ETF yields about 3.5% – you can expect $12,206.32 per year.
As such, we have a generation of workers that may find that they have to accept an amount of risk that previous generations would baulk at.
Responsible Use Of A Leveraged Portfolio
Responsible use of a leveraged portfolio that consists of real estate investment trusts may allow a Millennial to mitigate the career risk in their forties.
If you do wish to introduce leverage into your account, you should limit yourself to borrowing $10,000 from the broker if you only have $10,000 to spare.
Constructing a REIT portfolio to yield 7% with a margin financing rate of 3.28% means that after applying leverage, you can increase your dividend yields to (7% x 2 – 3.28%) or 10.72%.
Accumulating $1,000 for 15 years will allow you to accumulate $403,736.53, but your annual dividends from this arrangement are now much higher at $43,280.
Having $3,600 of extra income a month is definitely enough to mitigate the risk of retrenchment from the workplace.
At this point, number savvy folks will note that in my example I have excluded capital gains in my leveraged REIT investing strategy. Disclaimer: I am not a purveyor of financial pornography.
A back-tested strategy investing in 19-20 of the highest yielding REITs for the past 10 years would have resulted in returns over 18.45% with a standard deviation lower that of buying all the blue-chips in the STI in equal weights.
Leverage, when used irresponsibly, can result in a margin call that would ultimately destroy 60% of your portfolio value. This is a Dark Art that needs to be used with care.
Only portfolios that are tested to outperform the markets at lower risk should be introduced into a leveraged portfolio.
Christopher Ng Wai Chung conducts an Early Retirement Masterclass with Dr Wealth.
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