5 tips before you start investing

In Singapore’s rising cost environment, the value of cash can gradually diminish due to inflation. Without mindful money management, your hard-earned money may lose purchasing power over time. That’s where investing becomes essential. Investment is for anyone who wants to take control of their financial future, grow their wealth, and keep pace with inflation. Getting started with investing is straightforward, and anyone can begin.

More young Singaporeans are actively diving into the world of investing, encouraged by investment information made easily accessible through social media and financial influencers, with a higher risk appetite observed amongst Gen Zs (29%) and millennials (31%) compared to the previous generation.

Whilst awareness of investment information is high among young investors, it’s crucial to ensure you’re on the right track before allocating funds to the latest hot stock or trending investment, especially in today’s volatile market conditions. Here are five tips to help make your investment journey a smooth and successful one.

1. Get Your Finances in Order First

Before considering investments, establish an emergency fund as your financial safety net—ideally covering three to six months of living expenses. This prudent approach ensures you’re prepared for unexpected circumstances without needing to liquidate your investments.

Once your emergency fund is set, it’s time to think about how much of your income you can set aside for investing. A popular rule of thumb is the 50/30/20 rule:

1. Allocate 50% of your income for needs (think: rent, food, utilities)
2. 30% for wants (e.g. entertainment and dining out), and
3. 20% for savings and investments.

2. Understand Your Risk Tolerance

Investing is not a get-rich-quick scheme—it’s a journey that requires some risk. Different investments come with varying levels of risk, and knowing how much risk you’re willing to take on is key to making informed decisions.

To figure out your risk tolerance, consider how much loss you’re comfortable within the short term for the potential of higher returns over the long run. Some people prefer more stable, low-risk investments like bonds or Singapore Savings Bonds (SSB), while others may be open to higher risk in exchange for the chance of bigger returns like stocks or exchange-traded funds. If you’re new to investing, it’s a good idea to start with safer options and gradually diversify as you become more comfortable.

3. Build a Diversified Portfolio

The saying “don’t put all your eggs in one basket” is a mantra every investor should live by. Diversification is the key to managing risk. By spreading your investments across different asset types, such as stocks, bonds, and REITS, you reduce the impact of a single investment underperforming.

How do you decide what to invest in? Long-term planning typically accommodates higher risk tolerance, whilst short-term goals may necessitate a more conservative approach. This is where SC Invest expert-guided portfolios can provide valuable direction.

When you build up your knowledge and expertise on common investments such as stocks, bonds and unit trusts, you can consider alternative investments like commodities, precious metals, futures and hedge funds.

4. Protect Yourself from Scams

While investing can help you grow your wealth, it’s also important to protect yourself from scams. There are plenty of bad actors out there looking to take advantage of new investors, promising high returns with little risk. If something sounds too good to be true, it probably is.

To avoid falling victim to scams, do your research and make sure you’re investing in legitimate products.

Verify information through authoritative sources such as the Monetary Authority of Singapore (MAS) or the official MoneySense website to identify fraudulent schemes. Be particularly vigilant with encounters from unregulated sources and never rush investments due to external pressure—take time to conduct proper research, pose questions and seek professional advice when necessary.

5. Stay the Course, Don’t Panic

Investing is a marathon, not a sprint. The market will go up, and it will go down, but the key is to stay focused on your long-term goals. Don’t let short-term market fluctuations or negative headlines cause you to panic and make impulsive decisions. Stick to your plan, stay informed, and remember that investing is about time in the market, not timing the market.

Building wealth through investments takes patience, discipline, and a willingness to learn. The earlier you start, the better, and the more consistently you invest, the more you’ll benefit from the power of compound growth.