Investment Guide: You Have SGD1000. Now Where Do You Invest It?
Here is the scenario: You have SGD1000 with you. You want to invest it somewhere for a profit. Where would you do it? Do not think that SGD1000 is a small amount and you can do nothing with it. You can in fact do a lot with this amount. You simply do not need hundreds of thousands of dollars for your initial investment.
A small amount, such as SGD1000, is not that bad an amount for a start. The rate of return will be as much as a large investment. And if you think in long-term return, you can actually gain a lot from it. It depends on where you invest though. Once you invest in the right places, your investment portfolio will start running. If you make wise decisions, it will bring good return in the long-term. Here are few options you can consider for investing your money:
Risk: low | Returns: low
For a safe investment, you can invest on bonds. These are called Singapore Government Securities. Bonds are basically debt securities. In other words, these are loans to a government. Risk is low for bonds, so is the return. You will be given interest (termed as coupon) for the money you lend to the government. There are two types of options here: T-Bills and general bonds. T-Bills have maturities ranging from 3 months to 12 months. Bonds on the other hand have maturities of 2, 5, 10, 15, 20 or 30 years. Minimum investment amount is SGD1000.
Most bonds pay steady interest income (termed as coupon) at periodic intervals throughout the life of the bond. You will earn returns when you receive coupons throughout the life of the bond. Upon maturity, the government will pay you back the 100% face value. Interest rate for T-Bills is currently 0.25% and for 10 year bonds it is 2.53%. If you invest in 10 year bonds, you will get (0.0253 x $1,000) = S$25.3 every year as coupons. After life of the bond ends, which is ten years in this case, you will get back the face value which is S$1,000. So after the life of the bond, you will have S$1,253 (S$25.3 as coupon per year X 10 + S$1,000 face value).
You can also invest in corporate bonds which give a little more interest rates compared to government bonds. You can consider buying bonds of Capitaland Limited, Singapore Airlines Ltd, City Developments Limited, Singapore Telecommunications Limited, DBS Group Holdings, United Overseas Bank Ltd.
Stocks or Equity
Risk: High | Returns: High
If you want to take high risk, consider investing on stocks. After you buy stocks of your preferred company, if the value of it increases later on, you will get a dividend. This dividend is your return from investment. Risk is high because you cannot be sure whether the value will increase or decrease. Apart than receiving dividends from the company, you can make money by selling the stocks at a higher price on a later date. Suppose you had bought 500 shares of a company at S$1.5. If you sell it at a later date at S$1.6, you will make a profit of S$.10 per share. You had 500 shares, so you will be making a profit of S$50.
You can minimize your risk by investing in blue chip stocks. Blue chip stocks are well-established companies and are financially very stable. At the moment, just 30 of the 800 companies listed on SGX are blue chip stocks. These companies provide consistent dividend pay-outs as well. You money is safe with this companies. At the moment, SIA Engineering, Singapore Press Holdings, Singapore Telecommunications and Starhub are the top blue chip stocks listed on SGX.
You can also maximize your risk and return by buying small-cap stocks. These companies are in early stages of growth and volatile. If you think or get to know from a source that a small company of today has a great potential, considering buying its stock. If luck is on your favor, it may become the next Google. In that case you will make millions from your small investment! Wilmar International, Keppel Corp., Hongkong Land Holdings and Genting Singapore PLC are some of the small-cap stocks you can consider investing at the moment.
Investment Grade Bonds
Risk: Medium | Returns: Medium
For a medium return, consider buying an investment grade bond from a company. Investment grade bonds are also debt securities just like government bonds. Interests are paid in form of coupons annually or every six months. Rate for investment grade bonds depends of individual companies but is around .50% to 1.00%. If you invest S$1,000 with a 1.00% interest in a company’s investment grade bond, you will have S$1,010 all together at the end of one year.
Risk: Varies | Returns: Varies
Mutual fund is another option you have for investment. Investing in mutual funds means a fund manager will take care of your investment and will give you profit periodically. Return here varies depending on the contract you will have with the fund manager. Among the top mutual funds, there are Aberdeen Asian Mutual Fund, DWS Premier Investments Funds, DBS Investments, ABF Singapore Mutual Fund.
Investment can always be done over time. You can invest the amount you have now and wait for return. Over the time, it will help you build up a secure and diverse investment portfolio.
Remember, it is a good idea to start early!