Investment Guide: You Have S$1,000. Now Where Do You Invest It?
Here’s the scenario: You have S$1,000. You want to invest it somewhere, but you’re not sure what you can do with such a small amount.
Assuming you have paid off any high-interest debts and have built an emergency fund, there are actually a lot of ways you can make that S$1,000 work for you. Here’s how to invest S$1,000 according to your risk level:
If you’re looking for somewhere safe to park your cash in, consider investing in bonds. Bonds are debt securities, which means that they represent loans to governments or companies who are looking to raise money to fund operations.
Some bonds pay out a fixed rate of interest (called ‘coupons’) at regular intervals. When the bond matures, the issuer has to pay the principal amount of the bond (also known as ‘face’ or ‘par’ value). The prices of bonds can fluctuate, so you can also sell your bond before the maturity date for a profit (or a loss).
With S$1,000, you can buy government bonds such as Singapore Government Securities (SGS) and Treasury Bills (T-Bills). Another option to consider is the Singapore Savings Bonds (SSB), which you buy with as little as S$500.
Your potential returns with bonds will be lower than that of other types of investments. For example, using the SSB interest calculator, here’s how much you may get if you invest S$1,000 in an SSB for 10 years:
You can buy government bonds through DBS/POSB, OCBC and UOB ATMs. You can also buy some government and corporate bonds through the Singapore Exchange (SGX). However, buying them through ATMs or through the SGX requires a Central Depository (CDP) account.
If you have a bigger risk appetite, consider investing in stocks. You can profit from stocks by receiving dividends (bear in mind that not all companies pay out dividends) or when prices of your stocks increase. Stocks can be quite volatile though, as their prices are influenced by lots of factors, such as a company’s profitability, economic conditions or geopolitical situations. As such, picking individual stocks to invest in is not advisable for beginner investors.
Some investors minimise their risk by investing in blue chip stocks (stocks of large, well-established companies) instead of small-cap stocks (stocks of small companies in their early stages of growth). Blue chip stocks are less volatile, and usually pay out consistent dividends.
In Singapore, if you’re keen on buying a stock, you’ll have to buy a minimum of 100 shares. This means that if a company’s stock is selling at S$1 a share, you’ll need a minimum of S$100 to buy the stock. However, buying stocks through the SGX is subject to certain trading fees, so you should avoid investing in such small amounts. For example, some brokerage firms charge a 0.275% trading fee or a minimum of S$25 for transactions below S$50,000. If you only invested S$100, you’d be paying S$25 – or a quarter of your investment – in transaction fees!
Alternatively, you can buy shares with smaller amounts of capital through monthly investment plans, which are offered by OCBC and Maybank. With these plans, you can build a stock portfolio with as little as S$100 a month, and at lower fees than buying directly through the SGX.
3. Unit trusts
Unit trusts (also known as mutual funds) pool money from many investors. A professional fund manager will use this money to buy a group of stocks, bonds or other investments. There are many different types of unit trusts to suit different risk profiles, investment strategies and objectives.
You can gain profit from investing in a unit trust whenever dividends (known as an income distribution) are paid out to the unitholders, and when the price of the unit trust goes up.
However, the fees involved in investing in unit trusts can be quite high, especially compared to ETFs or robo advisors. These fees include an upfront sales charge for investing in the unit trust (which typically ranges from 1.5% – 5% of your investment) and an annual management fee (typically ranges from 0.5% – 2.5% of your investment).
Unit trusts cannot be bought on the SGX. They are bought from banks and brokerage firms. Alternatively, you can invest in them through online platforms like dollarDEX, Fundsupermart and Philip Unit Trust, which generally have lower fees or waived sales.
Exchange traded funds (ETFs) pool investors’ money to buy a group of stocks, bonds or other investments. Just like stocks, you can gain returns from ETFs through dividends and capital appreciation.
Similar to a unit trust fund, an ETF is a collective investment scheme that allows you to invest in diversified underlying assets. However, unlike a unit trust fund, it is not actively managed by fund managers. Instead of selecting individual stocks or assets to invest in, the fund manager of an ETF tracks or replicates the performance of a benchmark index. This means that unlike unit trusts, the performance of an ETF does not depend on fund managers, or their forecast of how the market will perform over the short-term.
ETFs are ideal for beginner investors as you’ll get instant access to a diversified group of investments with relatively little money. For instance, investing in a Straits Times Index ETF means buying a portfolio of Singapore’s 30 biggest companies. Adding diversification to your portfolio is good, as it spreads out your risk among different investments, reducing your losses if an investment in your portfolio underperforms.
Historically, investing in an ETF like the SPDR Straits Times Index ETF would have given you reasonable returns. If you had invested S$1,000 during its inception in April 2002, it would have grown to S$2,076 by the end of May 2018 – that’s an annualised return of 7.52% per year.
Unlike stocks, ETFs have annual management fees, which are typically up to 1% of your investment.
How much property can you buy with S$1,000? At about S$420 per square foot for a HDB flat, you’d only be able to afford 2 square feet – which is to say, you wouldn’t be able to afford to buy any property through the traditional route.
However, with real estate investment trusts (REITs), you can invest in a diversified portfolio of property with very little money. They pool capital from investors, which is then managed by professionals to own and operate income-producing real estate. REITs invest in all types of properties, such as residential, commercial, industrial and retail properties.
Because they are required to distribute 90% of their taxable income to investors in order to enjoy tax transparency treatment by IRAS, REITs generally have high dividend yields (5% to 9%) compared to regular stocks. You can also gain profit from them through capital appreciation.
REITs are traded on the SGX like stocks, so you’ll need to buy a minimum of 100 shares. Again, keep in mind that you’ll probably want to invest more than the minimum, so that brokerage fees don’t take a big cut out of your investment.
6. Crowdfunding/P2P lending
Crowdfunding is another way that companies use to raise money to fund their growth or operations. There are a few types of crowdfunding, but as an investor with minimal capital, debt-based crowdfunding might be of most interest to you. Debt-based crowdfunding, or peer-to-peer (P2P) lending, involves pooling money from investors to lend to businesses.
With potential returns of 10% p.a. or higher, crowdfunding typically delivers better returns than bonds, blue chip stocks and other types of investments. However, you’ll be taking on higher risk as well. Companies that raise funds through crowdfunding tend to be startups and small businesses that are not well-established. There is a small risk that they could default on their repayments, causing you to lose your money.
Singaporean P2P lending platforms include Capital Match, CoAssets, Funding Societies, Minterest, MoolahSense and New Union. Generally, these platforms will require you to deposit a minimum of S$1,000 into your account to start investing – however, each campaign that you loan your money to may require a smaller minimum.
Does investment jargon make your temples throb? Wish you could just hand over your money to someone and have them invest it for you?
If so, you may want to consider investing through a robo advisor. Robo advisor platforms use algorithms to automate your investment portfolio. When you sign up under a robo advisor platform, you’ll complete a questionnaire that will gauge your risk tolerance and investment time horizon. The platform will then use certain algorithms to automatically invest your money, and to periodically rebalance your portfolio in response to market conditions.
Robo advisors are good if you prefer a set-it-and-forget-it approach to investing. They also charge lower management fees (below 1%) than unit trusts, which will eat up less of your potential profit over time.
In Singapore, robo advisor platforms include AutoWealth, Smartly and StashAway. However, you need a minimum of S$3,000 to start investing with AutoWealth, while Smartly and StashAway has no minimum investment requirements.
The best time to invest
To pull out an old investing cliché: “The best time to plant a tree was 20 years ago. The second best time is now.” Over time, S$1,000 could potentially grow into a significant amount. It may be a small sum to start with, but it’s a great way of learning the ropes of investing without risking too much capital.