What is investing?

Before you start investing

You should have these in place before you start on your investing journey:

• Enough money for your daily expenses and other expected expenditure

• Enough cash for emergencies (about 3 to 6 months’ income)

• Your basic health and life insurance policies in place

Why invest?

Investing is an opportunity to grow your savings so that you can achieve your financial goals, whether it is for your home, your children’s education or your own retirement. The earlier you start, the better!

Investing will generally help you generate better returns than saving in a bank but at the same time, all investments come with risks. It is possible that you will lose some or even all of the money you have invested.

This is why you should equip yourself with the necessary investing knowledge and information before you start.

Basic terms and concepts

Here are a few terms that you will find useful before you start investing:

Asset allocation – This is about deciding what proportions to allocate to different asset classes within your investment portfolio to balance risk and return, in keeping with your goals, risk appetite and investment horizon.

Capital – The sum of money you are investing with.

Capital gain or loss – The amount you make or lose when you sell an asset.

Diversification – Diversification is about mixing a variety of investments in your portfolio to achieve your desired risk-return profile. You can diversify your portfolio across different asset classes like shares or bonds, different markets like domestic, regional or global markets, or across different economic sectors and industries.

Dollar-cost averaging – This involves investing a fixed sum of money at regular intervals, regardless of whether the market is up or down.

Investment horizon – The amount of time you have to invest to achieve your financial goals. If you have a longer investment horizon, it means that you have more time to stay invested to ride out short-term fluctuations. The longer your investment horizon, the more time you also have to grow your savings through compounding.

Investment income – This is income that you earn from your investment. It could be dividend payment from shares or unit trusts, or the coupon received from a bond.

Return – The gain or loss made from an investment. It can be income earned from a product, or the capital gain or loss (price gain or loss) on the product.

Risk – The likelihood that the return from an investment may be less than you expected. Investment risk can refer to:

• Lower than expected returns, for example, due to share price volatility or the underperformance of a fund.

• The possibility of losing the money invested, e.g. when a bond issuer defaults on interest or principal payments. In some cases, you may lose all of the money you invested.

All investments come with the risk of losing money. Always know the maximum you can lose.

Liquidity – How easily or quickly an investment can be converted to cash. For example, shares can be typically bought and sold more quickly than property, which usually requires a significantly longer time to convert to cash.

Market timing – Buying or selling shares when you think the market is favourable for you.

Net returns – The amount earned from a product less any losses and fees. Transaction costs such as sales charges, brokerage charges, and manager fees will reduce the returns to you.

Portfolio – The pool of investments you own.

Things to consider

With so many types of investments to choose from, it helps to take a closer look at your personal financial situation to see what suits you best.

Here are a few things to think about as you make your plans:

• Your goals – What are your financial goals? Are you looking for a regular income? To grow your savings quickly? Or to preserve your savings?

• Your investment horizon – When do you need the money? Will you need to be able to convert your investment to cash quickly, or are you able to hold your funds in the investment for the long term?

• Your risk appetite – Can you withstand losses? What level of risk are you comfortable with? Is your investment portfolio sufficiently diversified?

Once you have invested, monitor your investment portfolio regularly and make adjustments as necessary, such as:

• Rebalancing your portfolio to make sure the mix of investments is still in line with your objectives

• Reviewing your portfolio at significant milestones in your life, e.g. when you get married, have children or retire, as your needs may change during such times