If you don’t want to spend time researching and analysing the market, then mutual funds may be more suitable. However, keep in mind that a vast majority of fund managers have underperformed against their passive counterparts in both the short-term and long-term.
As for deciding between ETFs and index funds, it boils down to whether you want to trade in the stock market as often as you like.
But remember that the stock market fluctuates often and it can be tempting to panic-sell or time the market, which may not necessarily lead to desired outcomes.
The quickest and most affordable way to invest in stocks is to open an online brokerage account. There are many online brokerages available and you can evaluate them based on factors such as commission fees, min deposit, and management fees.
Invest in REITs
While most Singaporeans view property investment as the best way of wealth accumulation, the truth is Singapore properties are becoming increasingly expensive. For this reason, most investors prefer to invest in REITs.
With REITs, you’re investing in a professionally-managed property portfolio, such as shopping malls, data centres, and hospitals. REITs generate income by leasing space to their tenants, and are required to distribute at least 90% of their taxable income each year. This is why REITs often pay higher dividends compared to most stocks.
REITs are traded on the stock exchange similar to stocks. The average yield is 5 to 6% per year, which is higher compared to the net yield of private properties of around 2%. What’s more, dividend income isn’t taxable in Singapore.
Invest in bonds
While bonds may not provide the same returns as stocks, they’re less volatile, making them ideal asset classes for those who want more certainty on their investment returns. Bonds provide fixed income in the form of coupon payments, which are distributed quarterly, bi-annually, or annually.
That said, be wary of bonds with high yields, as they tend to be junk bonds. Junk bonds are issued by companies that don’t have good credit ratings. This means they also have a higher risk of missing interest payments or going bust.
There are various types of bonds available, such as corporate bonds, government bonds, and bond ETFs. The most popular bond in Singapore is the Singapore Savings Bonds (SSBs). They have the highest credit ratings and are one of the safest bonds out there.
When it comes to investing in bonds, the general rule is that the further you are from retirement, the fewer bonds you should have in your portfolio.
Should you invest S$100k all at once?
There are two ways to invest your money: lump-sum investing or dollar-cost-averaging (DCA).
Lump-investing basically means that you invest all (or a large sum of money) in one go. Studies have shown that lump-sum investing outperforms DCA in the long run about 75% of the time. However, investing large sums of money is riskier in the short-term especially if the market crashes.
Conversely, the DCA strategy is the slow and steady approach; you spread your investments by making regular and recurring over a fixed schedule regardless of the market condition. This helps to spread your risk and avoid timing the market. However, the returns are lower compared to lump-sum investing and this strategy also requires discipline.
Deciding which approach to take depends on your risk tolerance and investment performance. If you favour performance, go with lump-sum investing. But if you’re more risk-averse, investing using the DCA strategy can help to reduce stress and nervousness, while gradually exposing you to risk.
Looking for a more sustainable way to grow your wealth? Learn more about priority banking and how it can help to diversify your investment options.
Remember to diversify your portfolio
No matter what you choose to invest in, the key to a good investment strategy is to diversify your portfolio with a variety of asset classes. This helps to reduce your risks in case one of the asset classes underperforms.
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