It can be a harrowing (albeit exciting) time in one’s life. The world being their oyster, many fresh graduates find themselves inundated with a flurry of advice from those around them as to how to invest their first (or more usually second) paycheck. Here are a few ways in which this group of budding (novice) investors can get in on some of the action early.
This one gets several notable mentions, and for good reason. ETFs stand for exchange-traded funds, an investment vehicle that has proven to be an effective component of one’s portfolio. They involve investing in a basket of securities that one can buy or sell through a brokerage firm on a stock exchange. Their popularity stems from the fact that they allow one to diversify one’s portfolio, without managing a large account.
Taking the Straits Times Index (a blue-chip index of the top 30 companies listed in on the Singapore Stock Exchange) as an example, their annual dividend yield over the last decade has outperformed any savings account several times over.
This form of investing offers consistent stability as well as diversification as one is not putting all their eggs in one basket. They do not require large sums of capital – one can opt to contribute a certain amount each month (minimum SGD 100) to one’s trading account through certain local banks.
One should always be aware that brokers charge fees/commissions and all income derived from securities do incur taxes as income.
Basic Insurance Savings Plans
This one takes a longer term approach to saving for one’s future. Also referred to as endowment plans, they involve investors contributing monthly/yearly with the promise of being paid out the amount plus interest in a lump sum upon maturity that could range from 10 to 30 years.
One of the advantages of this method of saving/investing is that they are effectively risk-free. They are a way of establishing forced savings towards a goal – be it for retirement or otherwise. Many endowment plans also come with yearly or 6-monthly pay-outs during the course of the agreed tenure. You still have access to the funds, although the interest will reduce considerably if you decide to terminate the contract.
It should be noted that most endowment plans are connected to life insurance policies (where the coverage tends to be less comprehensive) and you need to shop around to find the right one.
Automated trading platforms have become extremely popular for several reasons. Aside from being void of emotions – which can affect trading decisions – their commissions/fees are considerably lower than those associated with seeking the assistance of a financial advisor. The influx of several automated platforms has also paved the way for those that offer investing opportunities with no minimum amounts – a great draw for novice investors wanting to enter the market.
One of the main setbacks behind robo-advisories (for beginners) is that fact that these platforms often are set up with the assumption that investors have defined financial goals as well as risk appetites. If a questionnaire to ascertain these objectives doesn’t come with the platform one is using, one should take one independently to be better advised on these matters – basically, to find out one’s risk profile.
Read more: What to Look for In a Robo-Advisory Platform
Those three methods are great starting points for graduates looking to begin their investment journey. As always, it should be kept in mind that all investments come with some degree (however minute they may be) of risk. It’s up to you to do the necessary due diligence to ensure that the investment vehicle ticks all the right boxes for your current financial situation.