4 Investing Strategies to Navigate Singapore's Stock Market
1. Dollar Cost Averaging: For The Risk Averse
Dollar cost averaging is one of the simplest investing strategies for new beginners to start with. The concept behind dollar cost averaging is simple. You set aside a fixed dollar amount for investing every month and buy into a basket of stocks. It can be a group of stocks that you like or a few exchange traded funds (ETFs).
The concept behind dollar cost averaging is for you to continue building your exposure to the stock market over a sustained period of time. When the market (and individual stocks) is expensive, you buy less quantity. When they become cheap, you buy more of them. Over time, it averages out and allows you to make decent returns by staying vested in the stock market over the long run.
Suggestion: Try out Regular Savings Plans like DBS’ Invest Saver, OCBC’s Blue Chip Investment Plan or PhillipCapital’s Share Builders Plan. For example, DBS’ Invest Saver allows you to invest a fixed sum from your savings account every month. All you have to do is to choose a monthly investment amount and the ETF that you would like to invest in. Once that is set up, DBS’ Invest Saver automatically invests the fixed monthly investment amount for you by buying the ETF you have chosen every month.
2. Passive Investing: For Those Who Are Too Busy To Invest
The most common excuse for not investing in the stock market is that you are too busy and you don’t have the time to constantly monitor individual stock counter prices. While that might be true, being busy isn’t a valid excuse for not being invested. Why? That’s because you can always turn to passive investing.
Passive investing is about replicating the performance of the stock market through a well-constructed portfolio of individual stocks. In today’s context, you can replicate the performance of a broad based stock index through index funds or ETFs that track major indices. In Singapore, the major index is the Strait Times Index (STI), which consists of the 30 largest market cap stocks in Singapore. In other words, passive investing in an STI ETF is equivalent to owning 30 blue chip companies in Singapore.
But you are not just limited to investing in the STI ETF. You can also choose to be passively invested in other major indices like S&P 500 or Hang Seng Index through ETFs.
Suggestion: Try out robo-advisors like StashAway, AutoWealth or Smartly. For example, StashAway assesses your risk profile and investment goals when signing up. Then based on your risk profile and investment goals, it automatically invests your money in selected portfolios that suit you. It is akin to having your personal wealth manager at a low cost.
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3. Value Investing: For Those Who Love Treasure Hunting
Value investing is one of the oldest yet most popular investing strategies in the market. The concept behind value investing is to find companies that are currently undervalued by the market. As a value investor, you will invest in these undervalued companies where their share price is lower than their intrinsic value. This requires some form of research for you to scour the stock market and look for undervalued stocks.
Suggestion: If you are interested in value investing, here are some financial ratios you should read up about: Price-to-earning (PE) ratio, net asset value (NAV) and price-to-book-value (PB) ratio. This also happens to be investment strategy behind billionaire investor Warren Buffett’s famous buy-and-hold philosophy: Find and invest in “cheap stocks” that are undervalued by the broader market, and hold them for a 5-, 10- or even 15-year investment horizon.
4. Core-Satellite Investing: For Those Who Want To Actively Invest
For those of you who are interested in researching and taking on a more active role in investing, you might want to consider the core-satellite investing strategy. The core-satellite investing strategy has two components:
The core portfolio is typically made up of steady blue chip companies that are well-established with a good track record of financial stability. An alternative is to build the core portfolio with ETFs of large cap funds such as STI or S&P 500.
Once the foundation of your core portfolio is settled, you can then move on to the satellite portfolio. The satellite portfolio is meant to help you achieve better than market returns by focusing on specific sectors or companies that you are confident of overperformance based on your research.
Suggestion: Sample Core-Satellite Portfolio
A possible core-satellite portfolio can be executed in the following manner:
Core Portfolio: 60% of capital invested in STI ETF
- 10% in banking stocks (e.g. DBS)
- 10% in real estate stocks (e.g. CapitaLand)
- 10% in gold
- 10% in REITs (e.g. Keppel DC REIT)
My Personal Take On Investing Strategies
Personally, I started investing in the Singapore stock market using the value investing strategy which gave me a decent 15% rate of return. The only caveat is there weren’t as many options for new investors as there are today, compared to 6 years ago (think Regular Savings Plan, Singapore Savings Bond, Robo-advisors). If I were to start my investing journey today, I would first go for the dollar cost averaging or passive investing strategy to get more experience under my belt.
As a novice investor, 5-10% per annum is a very decent return to aim for in the first few years. Once you’re more confident, you can progress to more active forms of investing like value investing and core-satellite investing which involves a lot more research and broader understanding of how stocks are valued but where you can aim for greater returns (10-20%).
Besides investing, another big chunk of your overall finance portfolio should be spent on insurance. Before you start diving into investments, make sure you have your back covered with the right financial protection against mishap, accident or death.
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Read these next:
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Finding The Value In Value Investing: A Guide
Dollar-Cost-Averaging vs Lump Sum Investing In Singapore: Which Should You Choose?
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Investing In Exchange Traded Funds (ETFs): A Newbie’s Guide To Getting Started
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Guide to Value Investing, and Why You Should Consider Value ETFs
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