As of recent (okay maybe not really recently but still), you might have seen news articles talking about how Singapore shares or just shares in general around the world are going up.
And then the thoughts come into mind. Should I start investing??? How do I invest? How much money do I need to start? But really the most important question you should be asking yourself is, am I ready to invest?
Disclaimer: If you don’t know yet, I’m just a 21-year-old boy learning how to manage and grow my money. In terms of experience, I have next to none yet. What I write below is what I have read online or in books and it’s my way of documenting them. So read this with a pinch of salt and do your own due diligence!
The first step to anything you do in life is to find its purpose, or goals. You gotta know why you want to do it. You want to know where you want to end up at the end of everything. Same thing with investing, you gotta have the purpose for it.
But first, we should clear out a misconception. A lot of times I hear people talk about stocks, they think it’s where you have this very fast computer and execute trades and make money in seconds! This is NOT investing, this is trading. There is a huge difference and the key one is that you execute trades more frequently when you are trading. Hence, trading is usually finding profit short term while investing is finding profit long term. Read here to find out more on the difference.
Now that we have clear that out, it’s time to set your purpose of investing. The average returns in the stock market is about 7% per year over 10 years, this can be it. To get a return of 7% every year over 10 years. We will use this as the guideline later on.
Do you have an emergency fund? Having an emergency fund is important. It is your financial “safety net”. If shit hits the fan, this would allow you to continue your normal life for the next few months or even years depending on how much you put aside. The amount recommended by most is about 3 to 6 months of expenses, but it will be better if you can make it 3 to 6 months of your income and even better if its 1 year. Take time to build your emergency fund. Click here to read more on this!
Do you have an insurance? Insurance is like another safety net, although for more specific cases like medical expenses. We never know when we will need it, but when we do need it, it will save us more money. Yes, you would have to pay a premium monthly but it’s better to pay fixed amount and be prepared rather than suddenly having a big amount pop up. You can Google more about this!! (If you’re like me, your parents would already have some sort of insurance for you in place. Do check with them!)
Do you have any high interest debt? Since our goal is to get 7% returns per year, any debt that has an interest of more than that would be considered high interest. This is because the returns would be cancelled out by the interest you have to pay. So it would just make your efforts go to waste.
Do you need a large sum of money in the near future? Like going to university? If you do, it would be ideal to save the money you want to invest for those. This is because by having cash to pay for these expenses would allow you not to take up a debt (like a student loan) or a smaller debt and in the long run minimise the interest you have to pay. Also, as your goal is over 10 years, you shouldn’t need to touch the money invested for the next 10 years unless you really, really need to. Doing so might make you lose some of your capital.
Like how you check reviews on a high-priced item before buying it, it is important to do your research before investing. This is called doing your own due diligence. You can look up what are the historical performance, the risks that a stock is exposed to and so on. By doing this, you would minimise the risk you are taking. Doing a little bit of research is better than doing none.
I would say this is a small but important part to investing. You have to understand that the stock market can be unpredictable at times. Things will go up and down and you wouldn’t even understand why. And this can play with your emotions. This is called emotional investing. This is why it is important that you prepare yourself and not let your emotions affect your decision making. Read up more here!
There is simply too many things that you actually have to do before you start to invest. The more prepared you are, the less risks you are taking. For me, as I invest more, I research at the same time. I would say I could have made more money with more research. Oh well, that’s me wanting to get my feet wet and learn along the way. But with that said, there is never a better time to start investing than now!
I must say I am not an expert on investing. I have read a lot for the past 2 years or so and I am still reading up a lot to improve my knowledge. So here are some links to check out if you want to read more.
Being Ready To Invest:
How to Invest:
Regular Shares Savings: