How much to invest? $10,000? $50,000? $100,000? This is a common question asked by investors, but is also an arbitary number as it all depends on how much you have and your current obligations at the moment. Before we jump into what we will invest in, it is important to highlight that we should only be investing money that we can afford to lose (i.e. we will not need this money for the next 3-10 years).
If you are looking to buy a house next year, we personally do not recommend you to invest due to the volatility of the stock market. Last 2 years was a great example, with the stock market dropping briefly to a bear market with the outbreak of COVID-19, and the strong rebound to an all time high with the release of the unprecendented stimulus around the world. Not forgetting the regulatory clampdown across sectors by the Chinese government over the last year.
It is also commonly advised that we should have 6 months of expenses set aside for a rainy day, before we consider investing. For that 6 months of rainy day savings, there are many places you can keep it in – such as the recently issued SINGA Bonds (by the government to finance major long term infrastructures, and is listed on SGX- more on it here) and Singapore Savings Bond (which can also be redeemed anytime- more on it here)
Knowing how much you can afford to lose (reality and mentally)
While you may have set aside the above amount as money ready to be invested (or lost in theory), most of us in reality (and mentally) are not ready to lose it all. How do we then determine what is the ultimate amount of loss we are willing to accept before we throw in the towel?
A useful way to gauge will be: if the general stock market or your portfolio were to suddenly drop 50%, how much money will cause you to lose your sleep at night? (That will probably be your threshold- no amount of money is worth it to lose your beauty sleep over)
Once you have determined how much you can lose, you will also have a better idea of your risk profile (if you are risk averse or a risk taker etc). That will also determine the asset class most suitable for you.
As a rule of thumb, Stocks are always more risky than Bonds – mainly because in the event of a liquidation, the company will have to sell all their assets to repay their debt holders first before repaying the equity shareholders of a company.
For investors who want to just invest and forget about it (till many years later)
Our top pick for this group of investors will be Exchange Traded Funds (ETFs). ETFs are suitable because they offer several benefits including the ability to build a diversified portfolio quickly and with a small amount of capital.
With the rising popularity of ETFs, there are also now more options to choose from in addition to the traditional index ETFs such as Nasdaq, Dow Jones or Straits Times. They may include ETFs that track various investment themes such as Semiconductor, Cloud computing , Blockchain or even the traditional sectors such as utilities and Oil & Gas.
ETFs are created by various financial service providers who aim to replicate the index or capture the theme that they are looking to target as much as possible. Hence there may be multiple ETFs trying to capture the similar theme (for Eg. ARK vs Blackrock)- which ETF you choose will depend on which financial service provider you trust most/prefer. ( Phillips POEMS have a simple ETF screener for the ETFs they offer on their platform)
Other things to consider……
About GEM COMM
We are an International Investor Relations firm (IR) based in Singapore. We specialise in Investor Relations, Public Relations, marketing, branding and messaging strategies for clients that include organisations of all sizes across Asia, Oceania and US.
GEM COMM advice and solves stakeholders’ issues, drive growth, reposition your business, improve your marketing and Public Relations (PR) or engage with investment community in your leadership or strategy story. We have a track record of helping clients reach these goals. We create and implement PR & media content, mitigate crisis and issues, establish and improve thought leadership & content marketing.
GEM COMM Engagement types include:
- IR/PR retainer program
- Crisis and issues projects;
- Content marketing (from research to lead generation) inclusive of Press Release drafting, Media Pitch, Website content, etc.