Ever wondered if there is a simpler way
to get started with investing? Well, if that thought had crossed your mind, you
are on the same page as us. Investing has always been rumoured to be an ‘ugly
monster’ which is so difficult to handle that we should probably avoid it entirely!
Yet, deep down in our hearts, we know that investing is inevitable, especially
if we want to achieve financial independence early.
To help all our readers get 2019 off to a
fantastic start (investing-wise), we decided to kick it off with this guide. In
this guide, we will share 6 ways that anyone can get started with investing fuss-free.
Buying an endowment is one of the simplest ways to fulfil a myriad of purposes. An endowment is a hybrid financial product that achieves three purposes: saving, insurance and investment. The most fundamental purpose of the endowment is to provide protection in the event of death. It also helps you save for a long-term goal (e.g. downpayment for a home in 5 years).
At the same time, it comes with an investment element as the savings you entrust with the insurer is being invested on your behalf. If the investments do well, the insurer will declare bonuses to policyholders (aka you) annually.
you are familiar with fixed deposits, then you don’t need much introduction to Singapore
Saving Bonds (SSBs). Unlike fixed deposits which are touted to you by bankers, nobody
ever touts SSBs to you. After all, your money that is invested in SSBs does not
go into the banks’ books. Instead, it goes into the Monetary Authority of
Singapore (MAS) books.
SSBs are not as popular as fixed deposits, they share the same characteristics.
Just like fixed deposits, SSBs also pay you interest for putting your money with
the issuer (MAS in this case). Interest is being paid out every 6 months as
long as you hold on to the SSB.
thing that makes SSBs triumph over fixed deposits is the flexibility in withdrawing
your investment. While fixed deposits penalise you for withdrawing your
investment early, SSBs don’t. Wait, there’s more. The longer you hold onto an
SSB, the more interest you can earn from it.
fact is that it is pretty simple to get yourself to start investing in SSB. It
is easily accessible to any Singaporean or PR who possess a CDP account and have
access to banking services. You can simply apply to invest in SSB through your
ibanking app or the ATM. Selling them works the same way. Just submit your
redemption request through your ibanking app or the ATM and you will get your
money back in a month’s time.
are seen as some of the better savers, at least according to studies tracking
human savings habits. As a millennial myself, I have to admit that we are
indeed good savers. However, there is one thing that we aren’t so good at — investing.
Millennials are either not investing or investing too conservatively that it is
doing more harm than good, according to Fidelity.
there a way to make it as easy to invest as it is to save? Regular savings plan
might just be the tool that you need if you are a good saver but poor investor.
normal circumstances, savings mean putting aside money either in a bank account
or piggy bank. Regular savings plan does just that for you. It helps you set
aside some money for saving purpose. But here’s what it does differently. It automatically
uses that money to invest for you.
regular savings plans invest in Exchange-Traded Funds (ETFs) while others
invest in blue-chip stocks. The type of investment depends on your personal
preference towards investing.
everyone is made to be an investing expert. Some of us excel in the arts while
others excel in being a linguist. The fact is that everyone has something that
they are good at. But maybe investing isn’t one of your strengths. But that
shouldn’t stop you from starting to invest. In today’s day and age where we are
all talking about artificial intelligence and how it changes our lives, we have
robo advisors to help us invest.
advisors are like robots running on human intelligence that help you invest. It
takes into account your financial goals, current commitments and the existing
investment climate to decide what is the best investment choice you should be
making at the present moment.
a robo advisor is like having a Nobel Prize winner at your side to make your
investment decisions for you. It lets you be smart about your investing without
you being a real Nobel Prize winner! The only difficult part is that you have
to sign up for an account. That’s it.
the word investing and the first thing that comes to mind is the complexity.
From doing your research on the overall market to reading the financial reports
of individual companies, each step of investing is filled with multitude of
tasks to accomplish before you can finally settle on the ‘right’ stock to
invest in. Most people give up in the middle of the process because there are
simply too many things to do in order to be a successful investor! But what if you
don’t have to go through all that work and can still turn out to be a decently
successful investor? Wouldn’t you want that? With ETF investing, you can.
key idea of ETF investing is to invest in a basket of stocks that represent the
market. For example, when you invest in a Straits Times Index ETF, you are
investing in every single stock on the STI. This gives you investment exposure
to the Singapore market as a whole through a single investment. In the short
run, each stock might fluctuate in value due to demand and supply dynamics.
in the long run, the market will continue to grow in value. Through ETF
investing, you do not have to worry about each individual stock’s performance.
The good stocks will over compensate for the performance of the lousy stocks.
a landlord is the gateway to becoming financially independent. That is the
conventional wisdom that most Singaporeans live by, which is largely influenced
by our parents. Indeed, in a land-scarce city-state like Singapore, investing
in real estate is a sure-hit. (P.S. Just look at our skyrocketing prices of
public and private housing in Singapore. What more do we need to say?)
what if there is a way for you to take real estate investing to a whole new
level, literally? What if you can invest in real estate like office buildings,
hotels and shopping malls? (Singaporeans love shopping too, don’t they?).
buildings, hotels and shopping malls are expensive to own. But here’s a secret
you probably don’t know. There are investment vehicles known as real estate
investment trust (REIT), which gives you the opportunity to be partial owners
of real estate.
example, if you invest in CapitaMall Trust, you are a partial owner of shopping
malls like Tampines Mall, Bugis+ and Westgate. The REIT structure makes it easy
for you and me to invest in investment-worthy real estate without having to worry
about the large sum needed. Each REIT is also listed on the Singapore stock
exchange that can be easily bought and sold. All you need is a CDP account and
a brokerage account to get started.
Source: Marcio Jose Bastos Silva / Shutterstock.com
Jack Bogle, was not only an American investor, but also a business
magnate, and a philanthropist. The investment legend passed away last month at
the age of 89, leaving us (as in common public) with some of the timeless
lessons on investment.
He pioneered the world’s first index mutual fund and opened
up the possibilities of investment to the retail customers. His own firm—The
Vanguard Company, became one of the largest index fund providers to offer a low
cost entry point for investors globally; and is, even today one of the most
respected and successful corporations in the investment world.
Titled “one of the four investment giants of the twentieth
century” by the Fortune Magazine in 1999, he directed Vanguard to deliver superlative
value to millions of hardworking low and middle class who were seeking to grow their
savings and realize their dreams.
To commemorate Jack Bogle, we summarise some of the most
important investment tips that he has spoken about time and again. So, get your
notebooks ready because these investing lessons from Jack Bogle could change
the way you invest.
According to Jack Bogle, the biggest mistake anyone can make is to NOT get involved with investments. Yes, investing might not be a sure-win thing. But if you do not invest, you will definitely lose.
Just think about how the value of money in your bank account is being eaten away by inflation. A dollar today would be worth a fraction of its cost 10 years down the road. Thus, why would you want to put yourself in a losing position?
It is natural for financiers to be worried about the volatility in the stock market. But here’s the trick, according to Jack Bogle, the biggest risk that investors face is not the short-term volatility of share prices, instead, the risk lies in the little or meagre returns on your capital as it accumulates.
Thus, NOT investing your money is the guaranteed route to ‘nothing’! Hence, investment is a must regardless of age, class, race, language, or religion.
everyone should be investing, Jack Bogle said, “Don’t be fixated with the market.
Instead, focus on the fundamentals of the company or economy that you are
Although there is a dollar value assigned to each stock counter,
it is merely a value that investors put on the stock. This means that it is
subjected to the perspective of investors at each point in time. As such, the
stock market is prone to noise and goes up and down as investors’ perspective
change. These stock market movements can be a huge distraction to your investing,
especially for new investors who are not used to movements in the stock market.
If you are investing in the market and become too fixated with the market, you will
be prone to making irrational decisions like selling low and buying high.
Everyone is trying to outsmart each other in the stock
market. Why? It is only when you outsmart others that you can get the most
return. But there are two problems with this strategy. The first is that, it is
difficult. Obviously, outsmarting another smart person is tough enough, let
alone trying to outsmart the rest of the world! The second problem is ‘effort’.
Is the effort put into outsmarting every one translating to investment returns that
justify it? Imagine having to clock in double the hours into research to only get
a 5% increment in investment return.
For years, many top funds have spent effort and money in hiring the best talents that they can get their hands on. Yet, 80-90% of these funds did not manage to beat the market (e.g. benchmark index like STI, DJIA, Nasdaq).
If you need some more evidence to convince you, check out the Warren Buffett challenge. The index fund that Warren Buffett chose beat the hedge fund portfolio hands down. All Warren Buffett had to do was to pick an index fund he liked and invest in it.
So, in Jack Bogle’s words, why not just invest your money in
the index rather than relying on the stock picking skills of fund managers (or
One of the most important investing lesson that Jack Bogle strongly
advocates actually involve primary school mathematics. This lesson is best
summarised by the following equation:
return = Investment return – Cost
Typically, investors put their focus on the investment return of their portfolio and seldom care about the cost that they have to deal with, in order to get these returns.
However, basic math concepts demonstrate that generating high investment return is as important as keeping the cost down if you want to get positive net investment return.
One of the largest components of cost in investing is the fees. Fees such as commission and management fee have a significant impact on investors’ net investment return. For example, management fee in unit trusts can be anything from 1% to 5% of your invested capital. The STI’s 10-year annualized return is 9.2% per annum. In order for any managed fund (e.g. unit trust) to beat the STI, it needs to achieve at least 13% investment return per annum.
For anyone who has tried their hands on investing, you will know that 13% sounds like a pretty stretched target. The only person who can beat 13% consistently is probably Warren Buffett! (whose annualized return is ~21%)
So, here’s what Jack Bogle suggested for commoners: Invest in
a low cost fund, i.e. an exchange traded fund (ETF). Keeping your investment
cost as low as possible lets you keep most of the gains from the miracle of
There are increasingly more options for you to invest at a low cost, especially with the rise of the robo advisory industry. If Jack Bogle was still alive, we think that he would advocate robo advisors as another good source of low cost investing.
‘I don’t know how’, ‘I’m not a good investor yet’, and ‘I
need to hone my investing skills more’ are common excuses beginners give if they
are not investing. However, if you have time on your side, you can negate the
impact of being a beginner investor.
Investment success takes time, so you need to give your
investments time in order for them to be compounded. In the long run, time helps
you to turn from an average investor to (at least) an-above average investor
with decent investment return. Even modest investment in tough times will help
you work towards growing your assets.
ups and downs of the stock market could often take your heart on a roller
coaster ride! This is why it is commonly said that stock market investments are
not for the faint hearted. Further, if you have the fear of missing out (FOMO),
it means that you are letting your emotions take over the driving seat in your
brain and push you towards irrational decisions.
Here’s why emotion is your worst enemy and why you shouldn’t
let your emotions take over you. Think about a stock that you are interested to
invest. However, you think that the price is a tad too high at the moment. You
decide to bid your time. Over the next few days, the stock continues to trade
around the same price, which is still a bit high for your liking. Then, here
comes the moment. The share price suddenly shoots up 5% due to a positive news
that it is making a new investment in a revolutionary technology.
What do you do now? Do you wait, or not? Most investors who
are new to the world of investing will get FOMO. ‘What if I miss this chance
and miss the boat entirely?’ is the most common reason. Better to pay a higher
price than to pay the price for missing the boat right?
In this case, Jack Bogle suggested that the siren song of the
market is there to seduce you into buying after the share price has soared. If
you can’t control your emotions, it is only a matter of time that it will kill
your investment capital.
Over the years, many of Bogle’s disciples have, after 10 to 20 years, had returns in the top 20% of all investors. It is speculated that this could be for two reasons, partly because index funds are unlikely to fall behind, and partly because other investors tend to trade in counterproductive ways. So, let’s hope these lessons will help you join the profitable tribe!
about investing but came to the conclusion that you are too young to be in the
game? Think that you would be better off spending more time hitting the books? Well,
that’s a myth that undergraduates like you and I typically fall for. While your
teachers would have reminded you time and again that studying is important, they
often neglect teaching you to be financially savvy.
investing is one of those skills that will take you a long way, even after you
graduate. The earlier you start to invest, the more prepared you are for the
future. It is often too late if you start investing only a few years after you
have started working. Your undergraduate days are the best time for you to get
started with investing when you have all the time in the world, literally.
Here are 5 common investment options for
you to invest in while still in your undergraduate days.
Undergraduates are known to be a savvy bunch of people.
We know how to scour through the internet to find the best dining perks. Yet, it
is surprising that not many of us know about the attractive Singapore Savings Bonds.
Perks of investing in Singapore Savings Bonds
Singapore Savings Bond brings the best of both
worlds to us as beginner investors. It is a safe haven asset that protects us
against capital loss. At the same time, the Singapore Government pays us interest
for investing in Singapore Savings Bond. In the event you need cash for another
purpose, you can exit your investments within a month. There won’t be any
penalties for exiting early. The only caveat is that the longer you invest in Singapore
Savings Bond, the more interest you earn.
The MAS has made it so accessible for us to invest
in Singapore Savings Bond that it is right there in front of us. All you need
to do is to apply for it via an ATM or your bank’s iBanking app. It is that
Another type of investment that is common for
undergraduates to invest in is an endowment plan. If you have a friend who is working
part-time as an insurance agent, you might find him/her touting you an
Creating a forced savings for your tuition fees
Endowment plans are typically marketed as a form of forced
savings. The idea is simple. You commit to putting in S$X every month for the
next 3 years. Then, at the end of 5 years, you will be able to receive a lump
sum of money. You can also choose to put in S$x at the start and receive a
larger sum of money at the end of 5 years.
Endowment plans come with an investment element that gives you an investment return. The investment element is split into two portions: Guaranteed return and non-guaranteed return.
The guaranteed return is the insurance company’s obligation to you. It is a guaranteed amount you will receive from them. The non-guaranteed return, on the other hand, is a variable component. If the insurance company’s investment portfolio generates a good return, they will declare a bonus to you. Else, you might not receive any bonus from them.
For undergraduates, an endowment plan can be a good
way to save for your university fees. It helps you break your university fees
into small savings step. At the same time, it inculcates a habit of saving in
you. If you diligently put money into your endowment plan throughout your
university life, you can break free from your university debt the moment you graduate.
How does that sound?
One of the biggest challenges to starting investing is the lack of knowledge.
As beginners, we rather choose not to make a move than to make a wrong move. After
all, 0 is still better than having negative returns, right? But what if there
is a simple way for you to be “right” all the time? Summon the exchange-traded
The whole idea behind ETF is, rather than investing in individual stocks,
you invest in the whole market. ETFs are made up of multiple assets packaged
into a single fund. An ETF aims to produce a return that reflects the performance
of every asset that is packaged into it.
For those who are new to investing, here is an analogy for you. Investing
in an ETF is like buying a set meal at McDonald’s. With a set meal, you get the
burger, the fries and the drink. Similarly, with an ETF, you get to taste everything
the market has to offer. For example, if you invest in an STI index ETF, you
are essentially gaining exposure to the 30 largest companies in Singapore.
One of the natural advantages that we have as an
undergraduate is time. This greatly compensates for our limited knowledge in
the financial market. The more time you have, the more room you have to let
your investments compound. To take full advantage of the time you have, you should
start investing. Among the different types of financial assets, stocks offer
the best time-adjusted investment returns. In simple terms, the more time you
have, the more returns you can derive out of investing in stocks.
One category of stocks that is recommended for undergraduates
are the blue-chip stocks. The term blue-chip originated from the game of poker.
In poker, blue chips hold the highest dollar value. As the name suggests, blue-chip
stocks are also considered as stocks with the highest value in the stock
market. They are known to be good investment assets for generating long term
Safe and stable investment option
Blue chip stocks offer unparalleled stability with
its stable earnings. Even if the market is experiencing a bear market, you can
still be assured that your investment will not vanish the next day. Just
imagine investing in DBS today. DBS will not vanish the next day because it has
such an established presence in Singapore and the region. Another perk of
investing in blue-chip stocks is their dividend-paying characteristic. Blue
chip stocks typically pay a dividend to investors every quarter or
How to invest in blue-chip stocks?
There are two
ways to invest in blue-chip stocks. The first and more traditional way is to invest
through a broker. After you set up a brokerage and CDP account, you can start investing
in stocks on the stock market.
Another way is to invest in blue-chip stocks through a regular savings
plan. First, set up a regular savings plan account with one of the banks. Then,
decide how much savings you want to commit every month. The committed saving
amount will be transferred to your regular savings plan periodically and used
to invest in a basket of blue-chip stocks. You can also choose to indicate
which blue chip stocks you will like to invest in.
If you feel confident about your financial knowledge, you can take one
step further by investing in small-cap stocks. Unlike blue-chip stocks, small-cap
stocks are typically riskier due to their smaller stature. Small-cap stocks
also come with greater uncertainty as their management and business model is
less proven. Thus, you will need to put in more effort into doing your research
and due diligence before you commit into investing.
Higher risk, but higher reward
But with greater risk comes greater reward. Small companies are able to
generate much larger growth rates than blue chip companies. A small company is
able to double its profits but a blue chip like Singtel can hardly increase its
profit by 10%.
Another advantage of investing in small cap stocks is the potential of discovering
gems. Small-cap stocks fly under the radar and hold great potential for those
who are seeking for undervalued stocks.
do not treat small-cap stocks as a get-rich-quick scheme. Also, ensure you’ve
put in end-to-end research (reading books and articles, consulting financial
experts, etc.) to have complete clarity before taking any investment decision.
Disclaimer: This article is strictly for general information purposes only and reflects the views of the author. Bankbazaar Singapore won’t be liable in any way for damages incurred using any information shared in this article. Investments are subject to risks, so you’re advised to read all documents carefully and consult your financial advisor before taking any investment decision.
Managing finances, especially in a super-expensive city like Singapore, can be quite tricky. Think about it, you get your salary and before you know it, the money is gone! Thankfully, the Government recognises this, which is why they provide various ways to help us save more money.
One form of saving is for our retirement through our CPF funds while the other way they help us save is by providing us with tax reliefs. This way, we can save for our future by reducing how much tax we pay now!
One such tax saving scheme is the Supplementary Retirement Scheme (SRS). SRS is a voluntary scheme which encourages individuals to save for their retirement. This additional savings is over and above your CPF savings.
So, why would you voluntarily save for retirement in another scheme when you already have CPF? Because of the tax benefits it provides! You can save a maximum of S$15,300 each year! So, if you are a mid to high-income earner, SRS savings are a great way to reduce the amount you pay as tax.
Most people who have put money in this account seem to be happy with the tax benefits.
But here’s the thing – your SRS account earns only 0.05% interest per annum, which means that if you leave this amount uninvested, you are actually not saving as much as you possibly can for your retirement.
The first step to put your SRS money to use is to know that you don’t have to invest only in the unit trusts or index funds that the bank tells you to. There are plenty of other options. Here are some of them:
Blue chip shares
Singapore dollar fixed deposits
Singapore Savings Bonds (SSB)
This last option is the latest one available to Singaporeans. Read on to know all that you need to know about these!
Until recently, you could invest up to S$100,000 in SSBs, but thanks to the Monetary Authority of Singapore, you can now invest up to S$200,000 starting 1st February 2019. This limit will include SSBs purchased using cash as well.
Also, from this date, you can use funds from your SRS to purchase Singapore Savings Bonds. Here’s what you need to keep in mind:
You can submit an application to invest in SSBs via your SRS operator (OCBC, UOB, DBS, or POSB). This application needs to be submitted online since you cannot apply for an SSB over the counter or in person if you plan to use your SRS funds.
The minimum transaction amount is S$500.
A transaction fee of S$2 will be deducted from your SRS account for each application.
You can apply each month from the first business day until the fourth last business day of the month from 7:00 a.m. to 9:00 p.m. (Monday to Saturday). However, remember that on the first business day, applications will be open from 6:00 p.m. to 9:00 p.m.
Your SSB will be allotted to you by MAS on the third last working day of the month and issued to you on the first working day of the next month.
The first interest you earn will be credited to your SRS account 6 months after the bond has been issued to you. Post this, you will earn interest every 6 months.
If all of this is too much to keep track of, worry not! Come March 2019 and you will have access to the ‘My Savings Bond’ portal launched by the Monetary Authority of Singapore. You can access the portal here and use your SingPass to log in. This way you can keep track of your SSB investments.
Higher interest rate: As opposed to the 0.05% p.a. interest that you earn if you leave your SRS funds idle, investing it in SSBs will let you earn around 2.20% p.a. (for a bond worth S$500 and with a tenure of 10 years).
Guaranteed returns: Yes, you can invest your funds in blue-chip shares with the hope of earning a high rate of interest, but returns aren’t guaranteed. When you play the share market, you need to be ready for the ups and downs that come with it. In contrast, SSBs are a safe and relatively risk-free investment option. Since this amount is being put aside for your retirement, you may want to think about how much of the money you are willing to risk.
Save on tax: Like we mentioned earlier, you end up saving quite a bit on tax by putting money into your SRS account. Besides, investing only further increases how much you eventually have in your retirement nest egg.
Think of your SRS savings as a brand new phone. At first, when you get it, you are excited by how sleek it looks. So, you put it back into its packaging and let it lie. However, the phone ends up losing value as the years go by. Now, even though you can still use it, it isn’t the same. The same goes for the money in your SRS account. You owe it to yourself to invest the funds. If not, you are just letting quite a bit of money go idle!
In fact, according to a Straits Times report, in 2017, around 34% of SRS funds were lying idle. This is S$2.34 billion lying idle! Imagine all the possibilities!
So, if you have an SRS account, make sure you put that money to use and since you can now invest up to S$200,000 in Singapore Savings Bonds, go ahead and invest. You’ll thank yourself when you realise you can retire in comfort!
Financial freedom is a dream that many of us dream to achieve. It is easy to fall into the misperception that financial freedom can be achieved as long as you work hard enough. Unfortunately, it doesn’t work like that. In order to achieve financial freedom, you cannot just rely on living on your paycheck. You need to start building your own passive income to grow your wealth so that you have dual sources of income. When you finally decide to take a break from work, your passive income can still sustain your living expenses.
If you really want to grow your wealth and achieve financial freedom, here are four methods that you can use, depending on your personal risk appetite.
1. The fuss-free and risk-free method: Singapore Savings Bond
“Growing your wealth needs to be done through high-risk investments. Otherwise, you can’t.” Well, that is a myth, at least for Singaporeans. This is because Singaporeans have access to a special type of investment known as the Singapore Savings Bond.
The Singapore Savings Bond (SSB) is a type of Singapore Government Securities that retail investors can invest in. SSB was designed with retail investors in mind so that you can invest your money with one of the safest institutions in the world, i.e. our Singapore government. SSB is a principal-guaranteed investment that is backed by the AAA credit rating of our Singapore government.
When you invest in SSB, you will receive coupon payments from the government periodically. This happens every six months as long as you are still holding on to an SSB. While SSB is a bond-like investment, it holds some interesting features that aren’t usually associated with bonds. For example, bond investments usually require a sizeable capital. However, you can start investing in SSB with as low as S$500. In addition, you can withdraw your investment in SSB at any time without any loss, even if you don’t hold it till maturity.
2. The don’t-lose-sleep-over-it method: Index investing
Index investing is Warren Buffett’s recommended way of growing your wealth. According to Warren Buffett, index investing is the most consistent way of growing your wealth in the long run. It is also the cheapest and easiest way to own a basket of stocks.
Since it is almost impossible for you to find winners all the time, the best way of growing your wealth is to invest in every good company you know. It is like buying all 10,000 combinations for 4D. There is bound to be one that will strike in the upcoming draw. That is exactly what index investing does for you.
Index investing allows you to own a small piece of every company that is part of the index. For example, by investing in the Straits Times Index (STI) via an STI ETF, you are the proud owner of all 30 blue chips at once. Since you are investing in a basket of stocks, you don’t have to worry about the performance of individual stocks. Investing in an index will allow you to sleep well at night without worrying about the performance of your stock picks. Overall, the basket of stocks is expected to give decent returns in the long run as the economy grows.
3. The do-it-yourself method: Blue chips investing
Maybe index investing and SSBs aren’t your kind of investment. You prefer an investment that grows your wealth at a faster pace with a greater degree of autonomy on what goes inside your portfolio. If that is what you are looking for, then you should opt for this do-it-yourself method.
Instead of choosing from a basket of pre-determined stock picks, you get to choose which blue chips go into your portfolio. You can choose to build your portfolio with a specific focus in mind, such as aiming for a faster rate of growth for your capital. For example, if you think that the technology sector will outperform in the next five years, you can invest in more technology blue chips. You can also choose to go defensive if you foresee market uncertainty.
If blue-chip investing is done right, you can outperform the performance of indices. However, the only caveat is that blue-chip investing requires a certain level of skill, effort, and time for you to do your own due diligence.
4. The leave-it-to-the-expert method: Robo advisory
What if you want to invest like a pro but do not have the relevant skills nor the required time and effort? Fret not, because robo advisory would be able to help.
Robo advisors are digital platforms that help you to make financial decisions using algorithms and artificial intelligence. They help you to decide which type of stocks to invest in, how much to invest in and when to sell them. It is almost like hiring an expert to manage your investment portfolio for you, at a fraction of the cost of hiring one.
Some robo advisors even apply the knowledge and wisdom of Nobel prize winners by implementing Nobel prize-winning algorithms when managing your portfolio. With robo advisory, you can invest like a professional stock investor without the skills nor effort.
If you have been investing your money, you might have heard of beta. Beta is a measure of the volatility of a stock compared to the entire market. To a lesser extent, you might have heard of alpha, i.e. excess return you gained against a market index. But have you heard of smart beta? In recent years, smart beta investing has been revolutionising the investment market. Today, smart beta investing has become a mainstream investment strategy.
So, what exactly is smart beta investing? And more importantly, why does it matter to you?
According to Investopedia, smart beta investing is the best of passive investing and active investing strategies combined into one. Instead of using conventional market capitalisation as weightage for stocks in an index, smart beta investing uses an alternate weighting scheme. This could be based on a multitude of factors like volatility, momentum, quality, value, size and dividends. Each smart beta investing strategy is unique in terms of the indexes, biases and factors that go into deciding the portfolio constitution.
In other words, smart beta investing is an index-based investment strategy that seeks to generate superior risk-adjusted returns through transparent quantitative techniques and rules-based criteria.
The term ‘smart beta investing’ was first coined by consulting firm Towers Watson in the early 2000s. Despite its seemingly modern name, smart beta investing isn’t entirely new. Its roots stretch back several decades. Smart beta investing builds on several market theories such as CAPM, Efficient Market Hypothesis and Modern Portfolio Theory to create basic rules-based investing strategies, aka smart beta strategies.
Each smart beta investing strategy consists of four main components. These four components are what makes smart beta investing special.
1. Base: Index investing
Index investing forms the base of every smart beta investment strategy. Like the construction of indices, the smart beta investing strategy will invest in every stock component of an index. However, instead of utilizing the traditional market-cap weighting, the weighting is factor-based. There are multiple factors that can be used to determine the weighting. The most common factors used to determine the weight are volatility, momentum, quality, value, size, and dividends.
2. Aims to generate a superior risk-adjusted return
Beta investing refers to index investing where you invest in the market index. Smart beta investing, on the other hand, tries to be ‘smarter’ by aiming to generate superior risk-adjusted return when the opportunity is ripe. Generating superior risk-adjusted return works in three ways. It either seeks to outperform typical market cap-weighted benchmark index, mitigate portfolio risk or both through smarter allocation of capital.
Smart beta investing relies heavily on quantitative techniques and rule-based criteria to achieve superior risk-adjusted return. For instance, smart beta investing leverages on CAPM theory to ensure that it takes on the lowest risk to achieve the desired investment return, i.e. mean-variance efficient.
Following years of extensive research, researchers have identified specific factors that are primary drivers of investment return. These factors are Volatility, Momentum, Quality, Size, Value, and Dividend.
Inexpensive stocks have shown to be able to generate above average returns compared to stocks that are trading at a higher valuation. Smart beta investing strategies that use value as one of its factors will use PE and PB ratio to identify cheap stocks.
Another factor that influences investment return is momentum. Momentum refers to the recent performance of the stock, e.g. investment return over the last 3 months. Stocks with stronger momentum have shown the tendency to generate higher investment returns than low momentum stocks. Thus, smart beta investing will seek to increase the weightage on strong momentum stocks.
Size effect is a pretty well-known factor within the finance community. The size effect theorizes that companies with smaller market capitalization tend to outperform larger cap companies. Thus, unlike traditional market-cap weighted indices that give more weightage to large-cap companies, smart beta investing places more emphasis on small-cap companies.
Volatility is a lesser used factor when it comes to investing, especially among newer investors. However, smart beta investing leverages on volatility to get an edge against other investment strategies. Stocks that displayed low volatility have earned higher risk-adjusted returns than stocks with high volatility. So, if a stock has a low volatility, there is a likelihood of the stock being given a higher weightage in the smart beta portfolio.
It is not uncommon to use dividend yield as a screening criterion. But unlike usual investing strategies, smart beta investing takes dividend yield as a key consideration factor rather than a good-to-have factor. Based on historical data, stocks with higher dividend yield have produced greater investment returns than stocks with low dividend yields. Thus, smart beta investing will give more weightage towards stocks with higher dividend yield.
Apart from these 5 factors, there are also other factors like Quality, Buyback and Growth that are widely used in smart beta investment strategies. Smart beta investment strategies can solely focus on one of the factors, a combination of some or all of them. It depends on the smart beta portfolio that you are investing in.
Why you should know about smart beta investing
Smart beta investing has shown a good track record of outperformance
According to a long-term study, smart beta investing is showing good performance relative to the S&P 500. The study was done by asset manager Invesco which studied the performance of 5 factors (e.g. quality, momentum, volatility) and 5 alternative weightings from 1992 to 2015. The results showed that all 5 of the factors and alternative weighting methodologies beat the absolute returns of S&P 500 index. Majority of the smart beta investing strategies in the study also delivered higher risk-adjusted returns than the S&P 500 index.
Smart beta investing = Active investing at a low cost, higher transparency
To put it simply, a smart beta investment strategy is almost like an active investment strategy. While providing comparable investment returns, smart beta investing achieves it at a lower cost and much higher transparency. You can easily find out the constituent components of a smart beta investment portfolio. This is unlike an actively managed portfolio where the components and why they were added into the portfolio are not known.
Smart beta investing adjusts according to market condition
With smart beta investing, investors do not have to worry about the current market condition. While you might have lingering concerns over the changing state of the economy and the impact on your investments, these are taken care of by smart beta investing. Smart beta investing is designed to tackle different macroeconomic environments using a combination of single factor strategies.
Where can you find smart beta investment opportunities?
The best way to invest in a smart beta investment strategy is to do it through an exchange-traded fund (ETF). There are two types of smart beta investing ETFs that are available to Singapore-based investors: Lion-Phillip S-REIT ETF and the recently launched Phillip SING Income ETF.
Lion-Phillip S-REIT ETF is a smart beta ETF that is jointly launched by Lion Global Investors and Philip Capital Management. The ETF was designed to appeal to investors who are looking to participate in the growth story of Singapore’s REITs in a low cost and transparent manner. It is one of the first ETFs in the world to focus solely on Singapore-listed REITs.
The objective of Lion-Phillip S-REIT ETF is to replicate and beat the performance of the Morningstar® Singapore REIT Yield Focus Index℠. The Index is compiled and calculated by Morningstar Research. It was designed to screen for high-yielding REITs with superior quality and financial health. S-REITs are selected into the portfolio based on 3 core proprietary factors: Quality, financial health and dividend yield.
3 proprietary factors: Quality, financial health and dividend yield
To determine the business quality, Morningstar looks at the REIT’s economic moat, i.e. its sustainable competitive advantage that allows the REIT to protect its long-term profits and market share from competitors. Morningstar then uses an algorithm to determine the Quantitative Moat Rating to predict the Economic Moat Rating. A positive score implies that the company has high business quality.
2. Financial health
The financial health of an S-REIT is determined by the distance to default criterion. An equation is used to calculate the probability the REIT will go bankrupt. The score is then compared to the score of a peer group of stocks within the REIT sector of developed Asia Pacific markets. The higher the score, the stronger the financial health of the company.
3. Dividend yield
The third factor that Morningstar considers when deciding which REIT to pick and how much weight to allocate to it is the dividend yield. Morningstar gives a higher rating when the trailing twelve months dividend yield is higher.
Current holdings of Lion-Phillip S-REIT ETF
Source: Phillip Capital Management
Phillip SING Income ETF
Phillip SING Income ETF is a smart beta ETF that focuses on 30 high-quality stocks listed on the Singapore market. The Phillip SING Income ETF tracks the Morningstar® Singapore Yield Focus IndexSM and uses a series of factors to select the 30 stocks for inclusion into the index. The aim of the smart beta ETF is to deliver quality income to investors. According to Phillip Securities, it offers investors a cost-effective and diversified exposure to the Singapore market.
Phillip SING Income ETF uses 3 factors as well for its stock selection: Business quality, financial health and dividend yield. Firstly, Phillip SING Income ETF screens for companies with sustainable competitive advantage to protect income stream from erosion. Secondly, the financial health factor helps investors avoid companies with deteriorating balance sheets at risk of financial distress. Thirdly, it uses dividend yield to maximise return and anchors the portfolio in the most liquid and stable companies. Dividend yield is also used as a factor to cap individual stock’s weight as a risk control.
The robo advisor industry has been growing over the years. More and more robo advisors have been launched by both startups and the incumbent banks. With 6 different robo advisors that are offering their services in Singapore, the odds of being stuck in a decision dilemma is so real. To help our readers make an informed choice, we are publishing this guide to compare every robo advisor player in the market right now. This guide contains everything you need to know about each robo advisor.
Common features amongst robo advisors
Pro: Proprietary algorithm for optimising returns and rebalancing
One of the challenges of investing is the need to invest time and effort into investing. You need to monitor your investments once in a while to check on their performance. In case it hits your targeted selling price, you need to sell some of it away and invest in another share (or cash out). In addition, when the market becomes volatile, you need to review, adjust and optimize your portfolio to make the best of market trends. With robo advisors, all these will be done for you without you lifting a finger. This is a common feature that is offered throughout the industry.
Pro: Investing with a financial goal in mind
Before you even get started with any of the robo advisors, the first thing you need to do is to indicate your investment goal. Are you planning to save for a home down payment in 5 years? Or are you looking to invest for your retirement? Each robo advisor is build to take your investment goal into consideration to better understand your investment needs.
Perhaps the most acclaimed feature of robo advisor (other than its automation) is the low fees. Compared to the traditional fund management industry’s average fee of 2%-2..5% of assets under management (AUM), robo advisors only charge less than 1.5%. Most robo advisors charge less than 1% management fees, except OCBC RoboInvest (for investors with < $50k investment).
OCBC Robo Invest
S$25k to S$50k
S$10k to S$100k
S$25k to S$50k
S$50k – S$100k
S$50k to S$100k
S$50k to S$100k
S$100k to S$250k
S$250k to S$500k
S$500k to S1M
Con: Lack of transparency
One disadvantage of using robo advisor that is common throughout the industry is the lack of transparency. Once you decide to let the robo advisor invest for you, you have absolutely no say over how the robo advisor does it. The only exceptions are CIMB eWealth and OCBC RoboInvest, where you have more flexibility. Still, you won’t have the privilege of knowing what’s in your portfolio, i.e. the individual components of your portfolio.
ERAA. That is the acronym for Stashaway’s proprietary investment strategy. For those of you who do not know, it stands for Economic Regime-based Asset Allocation. According to Stashaway, ERAA monitors economic trends and valuations. Based on these observations, it makes an informed and intelligent management decision for your investment portfolio.
According to Stashaway, its ERAA adopts a systematic approach towards investing that avoids human biases. Fundamentally, ERAA adopts a long-term view of the market, focusing on solid economic fundamentals. ERAA also deploys a risk shield aspect that responds to abnormal market behaviour when market prices’ moving averages lead to two or more “market deaths”. With ERAA, Stashaway seeks to avoid overvalued investments and focuses on undervalued assets.
Pro: More diversification, less risk
Stashaway builds a portfolio for you by tapping onto 19 differentiated and global asset classes. This includes shares from a variety of sectors from around the world, bonds issued by governments and corporations, and gold. With such a diversified portfolio, you don’t have to worry about sudden drops in any given asset class.
Pro: Strong emphasis on risk management
Stashaway believes strongly in managing risk for its customers, i.e. you. Thus, the first thing that Stashaway does for you is to understand your risk appetite. Stashaway then dynamically maintains your desired risk preference for you by taking the current market condition into consideration. When economic conditions change, your portfolio’s asset allocation will automatically change to maximize your returns while keeping your risk level constant.
Firstly, Stashaway takes risk management so seriously that it has 31 risk profiles to cater to the needs of all types of investors. Secondly, Stashaway comes up with its own risk index, i.e. StashAway Risk Index. StashAway Risk Index is Stashaway’s unique interpretation of the popular risk metric, Value-at-Risk.
Pro: Only robo advisor to adopt fractional shares
Stashaway is one of the few robo advisors in the world to incorporate fractional shares, not just in Singapore. The benefit of fractional shares is that it offers flexibility, precision, diversification, and efficiency to you as an investor.
Here’s how fractional shares can be useful for you as an investor. For example, if you have S$1,000 and intend to invest in a share that costs S$300, you can only buy 3 shares. The remaining S$100 has to be kept in cash or invested in other shares. With fractional shares, it allows you to buy shares down to the precision of 0.0001 piece of a share.
Firstly, fractional shares enable you to be flexible in personalising your portfolio for different investment needs for different investment goals. Secondly, it also ensures that every dollar in your portfolio can be fully utilised for investment. Thirdly, fractional shares provide access to high-priced shares that would otherwise be inaccessible without a large one-time deposit. Lastly, you won’t have to worry about disrupting your portfolio’s allocations when you withdraw your investment.
Pro: Cost effectiveness
Cost is a major factor that determines the overall performance of your investment. The higher the cost, the harder it is for you to outperform the market. Thus, this is the reason why the legendary investor Warren Buffet recommends the average Joe to invest in low-cost exchange-traded funds. Well, if you are looking for a cost-effective option, then AutoWealth stands out as one.
It is an industry norm to offer differing management fee across different robo advisors. However, if you are looking to invest less than S$100,000, AutoWealth has the most competitive rate amongst robo advisors. AutoWealth charges a low fee of 0.5% advisory fee per annum and an additional US$18 platform fee per annum. The only segment that AutoWealth loses out is in the $100,000 segment where its fee is slightly more expensive that Smartly and CIMB eWealth.
Here is how AutoWealth compares against the other robo advisors in terms of fees for the amount invested.
OCBC Robo Invest
Pro/Con: Detailed investment goal and risk analysis assessment
Compared to the other robo advisors, AutoWealth has a much more detailed investment goal and risk analysis assessment. Filling in a detailed assessment allows you to better understand your own investment needs as well. However, it also means that the inertia to start investing is higher. You might lose patience and just give up on starting your investment with AutoWealth.
Pro: Conducts regular workshops
Among the robo advisors in Singapore, AutoWealth is the only one that conducts regular workshops to engage its customers. The workshops usually involve discussions on financial topics like general investing and retirement. This is a value-added service that allows you to interact with the AutoWealth team and learn more about personal finance from them.
Pro: Algorithm powered by Nobel prize-winning research
The advantage of robo advisory compared to traditional wealth advisory is the chance to tap on the potential of algorithms. Robo advisors are able to make sharper, smarter, and less emotion-led decision than humans. In that aspect, Smartly brings out the best in the potential of an algorithm to help investors by tapping onto Nobel prize-winning research.
According to Smartly, it uses the Black Litterman model and modern portfolio theory to construct each portfolio. Every portfolio will be customized based on the amount of risk you are willing to accept and the wisdom of the Nobel prize-winning research.
Pro: 11 years’ worth of data for back-testing
The strength of an algorithm doesn’t only depend on the methodology behind it, it also depends on the data that powers it. It is no wonder data is now the new oil, according to analysts. One of the core strengths of Smartly is the amount of data that it has accumulated. With 11 years’ worth of share market data, Smartly is able to do countless back-testing on its strategies. It is also able to find patterns, correlations and relationships between asset classes. This allows Smartly to better optimize your portfolio.
Pro: Passive and highly diversified
While other robo advisors provide portfolio personalisation that is more share-focused, Smartly builds its portfolio primarily using ETFs. Through its research, Smartly selected a basket of 20+ ETFs out of a universe of 1,500+ ETFs. Then, depending on your personal risk appetite, a diversified portfolio will be created for you using this basket of ETFs. This helps you to create a highly diversified and passive portfolio that is able to withstand a multitude of market conditions.
Smartly also ensures that you are invested across a variety of asset classes, not just in shares. Commodities, corporate bonds, government bonds and real estates are other types of asset classes that you can expect to own.
4. OCBC RoboInvest
Pro: More control over investments
Currently, the robo advisors in the market do not allow you to make changes to your own portfolio. Neither do they allow you to decide your own investment theme. You can only trust the robo advisor with your money and hope that they have your best interest in mind.
Unlike the other robo advisors, OCBC RoboInvest allows you to have more control over how your money is invested. OCBC RoboInvest has the option for you to choose your preferred portfolio and investment theme. You can choose from 28 thematic portfolios of equities and exchange-traded funds across six different markets in Asia, Europe and US.
For low-to-medium risk investors, you can opt for “The All Weather” portfolio. “The All Weather” portfolio is designed to perform reasonably well in various economic and inflationary environments. But if you choose to take on a bit more risk, you can be more focused in your investment theme. For example, you can choose to invest in the “Stable Aussie Giants thematic basket”, which focuses on large-cap Australian shares with low volatility.
Con: No extra interest rate bonus on your OCBC 360 savings account
One edge that OCBC RoboInvest has over other robo advisors is the fact that most people would already have a savings account with OCBC. This makes it so convenient to just link your account with OCBC RoboInvest to start your investment. Unfortunately, even if you choose to invest with OCBC RoboInvest, it doesn’t qualify under the Wealth Bonus. This means that OCBC won’t pay you the additional interest rate on your OCBC 360 account.
Although UOB’s UTrade Robo doesn’t have many features that stand out from its peers, it does have a simple and easy-to-understand 6-step investment methodology.
UTrade Robo first identifies the set of major asset classes which are investable, based on your risk profile, risk appetite and financial goal. Then, UTrade Robo selects low-cost ETFs to represent each asset class. Using Modern Portfolio Theory, UTrade Robo will allocate among the chosen asset classes to determine the maximum expected return for a given level of risk. A suitable portfolio will be created for you with your financial goal and risk profile in mind. UTrade Robo will then implement and periodically rebalance the portfolio. As you progress through your goal, it will recalibrate the risk level for your portfolio. Additionally, if you provide updates to your goals or risk profile, the portfolio will also be recalibrated.
The edge that CIMB eWealth has over other robo advisors is that it offers both goal investing and thematic investing. Each type of investing comes with its own proprietary methodology to craft the best portfolio for you as an investor.
Pro: CGS-CIMB Quantitative Thematic (CQT) for thematic investing
CIMB eWealth’s CGS-CIMB Quantitative Thematic (CQT) is an investing methodology that it adopts for thematic investing. If you choose thematic investing, you can invest in the right broad opportunities, macroeconomic themes and trends. CIMB eWealth will help you to decide which shares to put into your portfolio with its CQT.
To begin thematic investing with CIMB, you will need to choose from 4 themes: (1) Singapore REITs; (2) US Tech Leaders; (3) HK Property or; (4) Singapore Cash Is King. CIMB eWealth will then identify the investable universe within the theme. After which, CIMB eWealth will rank the shares with quality, value and momentum as criteria using its CQT.
Pro: CGS-CIMB Optimised Risk Premia (CORP) for goal investing
If you prefer goal investing, CIMB eWealth also offers that option. CIMB eWealth’s goal investing helps you to be disciplined and stick to a sustainable investment plan to achieve your goal. CIMB eWealth will help you to decide which shares to put into your portfolio with its CGS-CIMB Optimised Risk Premia (CORP).
The core focus of CORP is on diversification and long-term results. If you choose to invest with the CORP methodology, CIMB eWealth will first review hundreds of ETFs globally to select the best mix for optimal market (Beta) returns. The screening criteria includes (1) AUM > US$ 1B; (2) Trading history > 10 years; (3) Expense ratio < 80th percentile; (4) Historical performance & low tracking error and; (5) Reputable issuer. The chosen ETFs are then used to design 5 different risk profile portfolios for optimum results.
Your personality may be your biggest asset, but when it comes to the financial aspect of it, that very asset can also turn into a liability! Read on for how various personality types handle the financial market, and what they should watch out for.
1. Risk taker
You are adventurous, most likely an extrovert, and are open to taking high levels of risk. You listen to advise and consider opinions and information but also go against popular choice based on your knowledge and experience.
Watch out for: Ponzi schemes and high-value investments.
What works well for you: Diversified portfolios, with risky and non-risky instruments. Penny stocks also suit your personality type, considering that trading low-value stock will satiate your appetite for the risk of the gamble and keep you insulated from losing too much money.
You are young, overconfident, and a financial novice, with a personality that slightly borders on greedy (uhmm!). You tend to buy whatever suits your fancy, without due diligence. More often than not, you are not fully aware of the consequences of your financial actions. Greed drives you, while inexperience fuels silly decisions.
Watch out for: Large losses in quick succession that may lead to complete financial ruin because of a low level of research and extreme overconfidence.
What works well for you: Diversified and well-researched investments, leaning towards low-risk instruments and ETFs. Get your hands dirty on a small scale as you learn the ropes.
You are eager, excitable, volatile, and always on top of hot, new tips. You are open to following the herd in a bullish market, always ready to lap up tips that are the flavour of the day. You are also highly emotional, which leads you to make decisions with your heart rather than with your head.
Watch out for: Bearish markets. Since your investments are not based on independent research and more along the lines of what a ‘credible’ person has recommended, try to see the difference between genuinely hot and bogus tips. Though your optimism can be rewarding at times, it can also lead to a reluctance to pull out when necessary.
What works well for you: Bullish markets, and doing your own research before taking the leap.
4. The persistent one
You are patient, willing to wait long periods, disciplined, and calm. You buy only after doing your homework, and your portfolio is dotted with investments that represent sure short through long-term growth. This steady nature usually translates into profits since you eliminate the chance of mistakes caused by emotion.
Watch out for: Research is your forte so you may pick up stock that is currently undervalued and unrecognized by others. Do the due diligence, because telling the future is not always easy. And sometimes you may not know what political (or ecological) crisis could hit your investments.
What works well for you: Stable blue-chip companies with sound fundamentals that will eventually translate into profit for you. You could also choose small companies that have a big future, since you are thorough by nature and well informed enough to take an educated risk.
You are casual and laid back. You either don’t have the time or the mental acumen to play the market, but want in on the game, in the hope of making easy money. You are likely to piggyback your investment portfolio through professionals.
Watch out for: When you choose not to drive, but only to hop onto someone else’s ride, it is only a matter of time before you get taken for a ride. Watch out for ‘fashionable’ investments and the flavour of the day since lack of research at your end could spell complete disaster.
What works well for you: Index funds, index exchange-traded funds, and target date mutual funds. Remember to keep an eye on your proxy investments, if only to know where you stand.
6. The against-the-current swimmer
You are stubborn and strong-willed, always ready to insist on what you believe is right. You are open to taking huge risks because of your overconfidence and may end up making extremely foolish decisions.
Watch out for: Overly risky and unconventional investments that have been completely written off by others.
What works well for you: Stable brands, but you could indulge your contrary personality by putting small amounts of money in stuff on the fringes.
Under-confident and jumpy, you scare easily and don’t have the stomach for the highs and lows of the market. You are open to offloading your portfolio at the slightest sign of trouble.
Watch out for: Short-term fluctuations are usually your downfall – where a stronger personality would usually ride the storm, you collapse under the fright of financial loss and instability and start selling.
What works well for you: With so much distrust and suspicion around investing, you should put money only in investments that are sure shot winners. Fixed deposits, blue-chip companies, and government bonds should be your only foray in the financial market.
8. The steady as she goes investor
Averse to risk, you are confident and focused by nature. Not to be distracted by the fluctuations of the market, you are in for the long haul. You don’t change your mind very often, not let emotions get in the way of important decisions.
Watch out for: What you may consider to be a short-term fluctuation in the market which you usually ignore may end up unravelling your carefully built up portfolio – keep an eye out for the nature of the market ups and downs.
What works well for you: Long-term investing, blue-chip companies and ETFs. If you do intend to play the market, lots of research and background checks are a good idea. Once you are satisfied and confident about where you are placing your money, you can be practically oblivious to the action around you.
Over the past couple of years, peer-to-peer (P2P) lending has become an excellent alternative source of business financing, especially for SMEs and start-ups. With peer-to-peer lending, SMEs and start-ups can gain the funding they need for business development. Not only that, peer-to-peer lending is attractive to investors too, with its high returns and easy concept. However, with the rise of peer-to-peer lending, some myths have attached themselves to the concept. Want to separate fact and fiction? Here are some myths and misconceptions about peer-to-peer lending, along with the reality.
False. In fact, one of peer-to-peer lending’s key advantages is its low entry barriers. Take our investment product, for example. With a S$1000 minimum first deposit at Funding Societies, you can start investing – and for better diversification, you can invest S$100 into ten loans each. You don’t need much to get started at all.
As a P2P investor, you also have flexibility as you are able to choose from the loans provided. You get to pick whichever loan has the tenor and interest rate that appeals to you most.
It depends on what you think of as “mainstream.” Yes, P2P lending as a concept has gained traction only recently, but there’s really nothing new about a business model where investors pool together the amount needed for a loan requested by a borrower. But these days, P2P lending activities are easier to facilitate thanks to online platforms and digital technology.
“There are no regulations for peer-to-peer lending”
One of the typical misconceptions about peer-to-peer lending is that the model is not yet regulated so investing in P2P lending or borrowing from a P2P platform can be risky. But it really depends on the region and country. In Singapore, MAS (Monetary Authority of Singapore) has issued a framework for the P2P lending model. Look for a local P2P lending platform that has been licensed!
Not really, but it’s easy to make the mistake. After all, peer-to-peer lending is a category of crowdfunding. Certain principles are the same, but there are a few differences between the two concepts. Crowdfunding pools resources from multiple individuals to gather financing for a particular project, perhaps a creative project or the creation of a product. Sometimes the individuals who help pitch in money for a crowdfunding campaign get rewarded with gifts and sometimes there are no physical rewards, similar to a donation.
Peer-to-peer lending, in the meantime, operates more like a lending and borrowing model. Investors and borrowers are connected through an online facilitator. Together, investors pool together finances for borrowers. The borrower will use the disbursed loan and repay his investors with interest.
“If you lend money on a P2P platform, it will be locked for a fixed period”
Well, yes. A P2P investor is asked to commit funds for a fixed period, but for a shorter period than most other investments. On our platform, loan tenures range from 3 to 24 months, which compares favourably to other instruments.
We hope the above has dispelled some of the tangles and confusion. With its advantages, P2P lending is an attractive solution for both investor and borrowers. Do you agree?
As the Chinese saying goes, you can find gold in books. Indeed, you can, especially if the book you are reading is on the topic of investment. To become a successful investor, you have to be an avid book reader. Reading will help you pick up vital skills and shapes your thinking that aligns with those of a successful investor. There are six investment books that you must read, especially if you are a newbie investor looking to succeed as an investor.
1. Rich Dad, Poor Dad by Robert Kiyosaki
‘Rich Dad, Poor Dad’ revolves around Robert Kiyosaki’s real father (poor dad) and the father of his best friend (rich dad). In this book, he shows how the different ways in which these two men in his life think about money and investing.
While the legitimacy of ‘Rich Dad, Poor Dad’ might be questionable, the financial concepts Robert Kiyosaki writes about are vital for newbie investors to understand the why they should be investing. The cashflow quadrant concept was one of the financial concepts that stood out most among the many others. Robert Kiyosaki also discussed about the concept of OPM (other people’s money) and how one can leverage on OPM to achieve financial freedom.
Ask anyone who invests, and they can probably talk to you for a day about ‘The Intelligent Investor’. It is a book that almost every novice investor has read. It is also THE book that every novice investor MUST read en route to becoming a successful investor.
‘The Intelligent Investor’ is a book written by Benjamin Graham, i.e. the Father of value investing. He is also the mentor of Warren Buffett, who is THE top investor in the world. Warren Buffett was under the tutelage of Benjamin Graham when Warren Buffett studied under Benjamin Graham at Columbia Business School in 1951.
In ‘The Intelligent Investor’, Benjamin Graham detailed his philosophy about value investing to the world. It teaches you how to buy undervalued stocks that were over-penalized by the market. According to Warren Buffett, he also picked up the mental approach of value investing while reading ‘The Intelligent Investor’.
Find The Intelligent Investor on Book Depository here.
Apart from value investing, growth investing is probably the next most famous investing term anyone knows. Growth investing was pioneered by Peter Lynch, who used to be the fund manager of the Magellan Fund. From 1990 to 1997, Peter Lynch’s Magellan Fund returned an average compounded annual growth rate of 29.2%.
In Peter Lynch’s ‘One Up On Wall Street’, he imparts the skill of identifying fast-growing companies using publicly available information. Turnarounds, cyclical and fast-growing companies were amongst his favourite types of investment.
Find One Up On Wall Street on Book Depository here.
Ray Dalio is the founder of investment firm Bridgewater Associates, which is currently the largest hedge fund in the world. Throughout the course of his career, he has learnt many soft skills that helped him to turn Bridgewater Associates into the hedge fund with the largest assets under management (AUM). ‘Principles’ is a book where Ray Dalio shares his investment and management philosophy and thinking with the world. Not only does it teach you how to become a better investor, it also shapes your thinking as a manager.
Most people do not read because they do not have time to read. If you are one of them, then the ‘Little Book’ series is the one for you. The ‘Little Book’ series consists of titles that teach you the basics of investing without beating around the bush. If you are just starting out, you can consider ‘The Little Book of Common Sense Investing’ as your entry book. It gives you an overall understanding of how you should be thinking when viewing investments.
If you wish to explore more niche areas, you can easily find them by googling for ‘The Little Book of (insert your topic here)’. The series teaches you about anything from value investing to commodity investing. Who knows, they might even have one ‘The Little Book of Cryptocurrency’ someday.
Find the Little Book of Common Sense Investing on Book Depository here.
6. Common Stocks and Uncommon Profits by Philip Fisher
Another book that heavily influenced Warren Buffett in shaping his thinking is Philip Fisher’s ‘Common Stocks and Uncommon Profits’. It is another classic investment book that you shouldn’t let it slip through your reading list.
Philip Fisher’s approach is to find a company that is not only good but also cheap. At the same time, the company should also have large growth potential. For Philip Fisher, there are 15 things he looks at in a company to decide if it will help him to uncover winning stocks and achieve huge (uncommon) profits. These 15 things are detailed in his stock checklist which he included in ‘Common Stocks and Uncommon Profits’.
Find Common Stock and Uncommon Profits on Book Depository here.
As you get on your way to becoming a successful investor, don’t forget to maximise your money whenever possible too. If you’re buying your books online, we recommend using the HSBC Revolution Card (5X Rewards) or DBS Woman’s World Mastercard (10X Rewards) to pay for your purchases.