Interest rates are at an all time low. Experts predict low interest rates will continue well into 2015. Savers in Singapore who were once happy to leave their money in a savings account, are looking to invest in products that give a potentially higher rate of return than a simple bank account. With interest rates often below inflation, leaving money in a savings account simply erodes the buying power of your savings. Investing in the stock market could provide you with greater returns on your capital and extra income from dividends. Buying stocks and shares is not without its risks, share prices can go down as well as up, but as a long term investment they can generate excellent returns, often outperforming bonds, and other assets such as property.
The appeal of this kind of investment is undeniable. It is also very easy to do. Buying and selling shares is easier than ever – you can even track your portfolio online. However it is important to stay focused and not get carried away. Make sure you are up to date with the investment world. Read journals and blogs and always research the company you choose to invest in. Never buy shares solely due to media hype or on a friend’s advice. Before you begin, you can practice with a fantasy share portfolio online. Many investment websites let you do this for free. Once you are familiar with the industry you should then take a look at yourself. Understand your investment needs and personality by determining your investment profile. This will help you to decide how to invest and help you prepare for losses should they arise.
ATR – Attitude to Risk
For some, the financial world of investment seems chaotic – full of daredevils and risk takers. However, successful investors are very calm about the risks they decide to take. They first ensure that they only invest what they can afford to lose, and make sure they have adequate savings to cover short to medium needs. One top tip is to hold at least 3 months income in an instant access savings account. This will cover you for any unexpected emergencies. Firstly you ensure that your basic needs are covered and then you are free to tackle your mental attitude to risk. Exceptional returns are usually the product of higher risk, while playing it safer with low risk will usually generate moderate returns. You also have to decide if you are patient or impatient when it comes to risk.
Investing in shares is not likely to see a doubling of your money in a year, you have to expect, at the very least, locking your money away for 5 years. If you are the sort of person who will be wracked with worry over what is happening to your money, stocks and shares may not be for you. Many banks and financial service providers have online questionnaires available to see what sort of risk taker you are. Alternatively you can speak to a financial advisor who will help you set up an investment plan.
Types of Investor
Determining your investor profile is a very important step, as it will allow you to identify the best investments for your situation. Attitude to risk is one part of identifying this, whilst other factors such as age, income and financial objectives, also play a part. Apart from investors who want no risk, investing in shares covers most investor profiles. Annual income from dividends may satisfy moderate risk takers while high risk takers hope for impressive capital growth is hedged on the value of the shares increasing. But knowing your investor profile should not limit the types of investment you make.
Most investors in shares aim for a diversified portfolio, hoping to achieve a combination of income and capital gain. Eggs are not placed in one basket, and a range of shares should be bought, some from big ‘safe’ companies, others from smaller more exciting ones. Shares for utility companies are usually stable and offer high dividends while shares in fast growing new companies are risky but could generate capital growth. A diversified portfolio should offer a balance of risk and reward, and you should decide the level of risk you want to take.