Investing doesn't have to be daunting for newcomers in Singapore. In fact, it's becoming increasingly accessible, with technology lowering the barriers to entry and providing a wider range of investment options. 

This article aims to highlight five types of investments that are especially well-suited for beginners starting their investment journey in Singapore.

The 5 best investments for beginners

Mutual funds are pooled investment vehicles that allow you to invest in a diversified portfolio of assets, such as stocks, bonds, or a mix of both, managed by a professional fund manager. 

They offer several advantages that make them attractive, especially for beginners in Singapore;

• Simplicity: Instead of having to research and select individual stocks, bonds, or other assets, the fund manager handles portfolio construction and management for you.

• Affordability: Many mutual funds have relatively low minimum investment amounts, making them accessible to those with less capital on hand.

• Diversification: Mutual funds provide a quick and easy way of diversifying your investment as it is spread across various assets, reducing risk compared to investing in a single stock.

• Liquidity: Mutual funds are generally highly liquid, making them easy to buy or sell through various platforms in Singapore.

However, like any investment, mutual funds carry risks. The value of your investment can fluctuate depending on market conditions and the performance of the underlying assets. While diversification within mutual funds helps to mitigate risk compared to investing in individual stocks, it's still possible to lose money. 

Key considerations

• Expense ratios: The expense ratio is an annual fee charged by funds to cover their operating expenses, typically a percentage of the fund’s assets. Mutual funds have higher expense ratios than other funds because they are actively managed by a fund manager whose services need to be paid for. 

• Fund manager expertise: It’s worth researching the fund manager's experience, track record, and investment style to ensure it aligns with your investment goals, before you entrust your money to them.

• Sales loads: Refers to a fee or commission paid to an intermediary (such as a broker or financial advisor) when buying or selling shares to a mutual fund. These can be a percentage of the amount you put into (front-end) or withdraw from (back-end) the fund, or an annual fee (level load). Sales loads are more commonly associated with mutual funds, though not all will have them.

» Learn more: Here’s our guide to investing in mutual funds for beginners

Index funds are a type of mutual fund that follows a passive investment strategy. This is different from actively-managed mutual funds, where fund managers actively choose and trade investments to try to beat the market.

Instead, index funds aim to mirror the performance of a particular market index, such as the Straits Times Index (STI) in Singapore, or global ones like the MSCI Singapore Index or the S&P 500.Index funds offer several compelling advantages for beginners;

• Diversification: Like many mutual funds, index funds provide easy and quick diversification across a basket of securities, mirroring the composition of the tracked index. This helps to spread risk and reduce volatility compared to investing in individual stocks.  

• Cost-effectiveness: Because they are passively managed, index funds generally have significantly lower expense ratios compared to actively managed mutual funds. This can lead to better long-term returns, as more of your investment remains working for you.

• Transparency: Index funds are transparent, as investors know exactly what they are investing in. The fund's holdings are designed to closely replicate the underlying index, making it easy to understand the fund's investment strategy.  

• Predictability: The performance of an index fund is relatively predictable, as it closely tracks the performance of its chosen index. This is in contrast to actively managed funds, where performance is more dependent on the fund manager's skill and market timing.  

Key considerations

• Tracking error: The tracking error of an index fund indicates how closely its performance mirrors that of the index it’s tracking. A lower tracking error means the fund is doing a good job of mirroring the index it’s supposed to be following, which means you’d generally want to invest in it.

• Performance tied to index: Index funds are designed to replicate the performance of the index it’s tracking. As a result, it is unlikely that they will outperform the market's return. Index funds are often favoured by investors with a long-term investment horizon who prioritise consistent, market-matching returns at a low cost. They are ideal for building diversified portfolios and are frequently used as core holdings in retirement accounts or long-term savings plans.

» Learn more: The difference between index funds and mutual funds

Similar to how index funds are a type of mutual fund, ETFs are a type of index fund that are traded on stock exchanges like the Singapore Exchange (SGX). Like stocks, they are traded throughout the day on the exchange, giving investors much more flexibility and control over their trading. In contrast, mutual funds and index funds are typically priced and traded only once, at the end of the trading day. 

This offers several key advantages for the beginner;

• Trading flexibility: Because ETFs are traded throughout the day on the stock market, you can buy and sell them whenever the market is open. This gives you more control over when to invest.

• Diversification: Like investing in mutual or index funds, ETFs spread your money across many different companies or assets, lowering your risk.

• Cost-effectiveness: Similar to index funds, ETFs are passively managed. There’s no need for a fund manager to actively pick and choose investments, which keeps costs down.

• Liquidity: Most ETFs are easy to buy and sell on the SGX or other stock exchanges. This is good if you need quick access to your funds for any reason.

• Accessibility: ETFs let you invest in various things – not just stocks but also bonds, commodities (like gold), and more. This makes it easier to create a varied investment portfolio, even with limited capital.

• Transparency: ETFs typically offer daily portfolio holding disclosures, which tell you where your money is going.

Key considerations

• Trading Costs: While ETFs themselves may have low expense ratios, they do incur brokerage commissions. This can add to your overall cost, especially if you trade frequently.

• Market Fluctuations: Because ETF prices change throughout the day, you're exposed to market volatility when you trade. You might buy at a higher price or sell at a lower price than you intended.

• Tracking error: If an ETF follows a market index (otherwise known as an index ETF), you want to take note of its tracking error as well. Just like with an index fund, you want the tracking error of the index ETF to be low.  

» Learn more: Here’s our guide to help you get started investing in ETFs.

REITs allow you to own shares of income-generating properties like malls or offices without buying the whole property yourself. These SGX-listed companies own and manage the properties and distribute a large portion of their rental income as dividends.

This can be an appealing option if you prefer to see a regular income from your investments, unlike others where you only get money when you cash them out.

Key considerations

• Property types: Understand the types of properties the REIT owns. For example, a REIT that focuses on retail properties will be affected by changes in consumer spending.

• Interest rates: Be aware that changes in interest rates in Singapore can affect REITs. Higher interest rates can increase their borrowing costs, which may impact dividend payouts.

• Dividend yield: Look at the REIT's dividend yield (the annual dividend payment as a percentage of the unit price) and how stable those payouts have been.

• Brokerage fees: Remember to factor in any fees your broker charges for trading REITs.

• Tax treatment: Income distributions from REITs are generally not subject to dividend tax. This means you typically don't pay additional tax on the dividends you receive from REITs, as the REIT itself has already paid corporate tax on its profits. However, this tax exemption doesn't apply if you receive REIT distributions through a partnership or if your REIT investments are related to a trade, business, or profession.

» Learn more: Take a look at our guide to REITs.

If you're looking for safe and straightforward ways to grow your money, SSBs and T-bills are worth considering. Both are backed by the Singapore government, making them low-risk investments.

SSBs offer medium-term investments up to 10 years, with interest paid every six months that increases over time, though typically with lower overall returns than other investments. You can start with a minimum of $500, up to a maximum of $200,000. 

In contrast, T-bills are short-term loans, maturing in 6 months or 1 year. You buy them at a discount and receive the full amount back at maturity. The interest rate is determined by an auction, and the minimum investment is $1,000. T-bills also offer high liquidity, meaning they can be sold relatively easily."

Key considerations

• Investment goals: If you need the money soon, T-bills might be a better fit. If you're saving for the longer term and want increasing returns, consider SSBs.

• Interest rates: T-bill rates can change, while SSB rates are fixed when you buy them.

• Accessibility: You can buy both SSBs and T-bills through local banks in Singapore.

In short, SSBs and T-bills are like secure savings accounts. They won't make you rich quickly, but they offer a safe way to grow your money with the backing of the Singapore government.

» Learn more: Get more information from our complete guide to SSBs and our complete guide to T-bills.

Investment apps are user-friendly mobile applications that allow individuals to invest in financial instruments like stocks, ETFs, and funds directly from their smartphones.

These apps are quite popular with beginners for a few good reasons:

• Easy to get started: Many apps have low minimum investment amounts, so you don't need a lot of money to begin.

• Ease of use: They're designed to be easy to navigate, even if you're new to investing.

• Convenient access: You can manage your investments anytime, anywhere, right from your phone.

• Learning resources: Some apps offer educational tools to help you understand the basics of investing.

Singapore offers several types of investment apps:

Robo-advisor apps 

These automated platforms build and manage diversified portfolios for you, considering your financial goals and risk tolerance — ideal for hands-off investors.

Brokerage apps

These provide direct access to the stock market, allowing users to buy and sell shares and ETFs.

Specialised apps

Some apps focus on niche areas, such as micro-investing apps, which enable regular investing of small sums.

• MAS regulation: Make sure the app is regulated by the Monetary Authority of Singapore (MAS), so that you know your funds and data are protected. This means it follows certain rules to protect your money.

• Fees: Pay attention to any fees the app charges, such as trading fees, platform fees, or account maintenance fees. Lower fees mean more money for you.

• Investment options available: Check what you can actually invest in through the app. Does it offer Singaporean stocks, international stocks, bonds, etc.?

• User interface and experience: The app should be easy to use and understand.

• Help and support: See if the app offers customer support or educational resources if you have questions.

• Security: Make sure the app has robust security measures to safeguard your funds and personal information.

» Learn more: Here are the best investment apps in Singapore for beginners.