Investment terms demystified

Making additional income or profit is basically what investing means. You commit money in expectation of earning a return in the form of income or profit. This article is what I was hoping to read when I turned 18 and was wondering “what is this word investing” and “how can I do it?”

Investing is devastatingly simple. It is just the people involved in the process that makes it out to be a scary monster. Well…people and greed. I’ve put together a list on what are some of the ways you can invest your savings and given a brief discussion on how each of the product works.

Products

I’m sure everyone has heard of stocks. Stocks are basically ownership of a company, when you buy a company’s stock, you own that company, plain and simple. If the company does well, you do well, if the company goes bust, you lose most of your money. With a few thousand dollars, you can purchase stocks of a company for dividends or because you think it’s a good company and the price will go up (of course there are other reasons like because you believe in technical analysis, but remember, our mantra is simplicity). To get started, you can approach a staff from any of the trading companies or banks in Singapore to start an account and start trading, if you’re over 18.

Next, there are bonds. Bonds are like loans; this is a situation where you become the “bank” and “lend” money to companies in return for interest. Again, lending to a good company is vital, you can research individual company’s ratings and it’s a good way to build your capital. Within bonds, there are government bonds and there are corporate bonds. Government bonds are very safe but they give very little interest to the buyer because they are considered risk-free. And corporate bonds increase in interest yield as the individual company offering bonds increase in riskiness. So companies like SIA (Singapore Airlines) will definitely pay less interest than Olam if both were to issue the same type of bonds.

Another way to invest your money is through mutual funds. By buying into mutual funds you are actually hiring an expert manager to handle your money for you and buy investment products for you. The manager usually charges a fee like 1% of your investment and helps you oversee your investment. Again, this is easily accessible to anyone by contacting any staff from a bank. And you can start with as little as $1000. Bear in mind that I personally dislike this product and avoid it because of the management fees and because personally I didn’t have a good experience with the returns I expected (I guess that’s another topic to discuss in future you don’t always get what you expect because of this concept called RISK), but there are good funds which deliver solid returns of 10-30%. So don’t take my word for it.

A product similar to mutual funds in nature and require less management fees are ETFs. This is a product that pools all the investors’ money (like a mutual fund) and spends it buying index products. So, depending what ETF you buy into, the fund owns different products of that particular nature. And example would be say you think Singapore is very safe, so you buy a Singapore index fund, this fund owns many of the companies in the Singapore stock exchange like SIA and Genting and DBS bank and other companies in Singapore. Another scenario could see you buying into healthcare or Asian properties. This is good because it helps to reduce risk and diversify your investment and still give you many niche choices to invest into depending on your own gut feel.

I consider insurance another form of investment. You get a return by placing your money with a company for 25, 30 or even 50 years. And get covered for certain risks that you face, be it illness or injury. Even if you are someone who knows nothing about investment or are too lazy to research just a little bit more after reading this, an insurance agent will magically appear in your life one day and offer you a superior investment than putting your money in a bank. Nuff said.

I also want to talk about Certificates of Deposits. Which is putting your money in a bank, fixed deposit or otherwise. It is an investment, you’re putting your money in there, and getting pittance, which still count as a return. Plus you enjoy the ability to withdraw that money instantaneously any time you require. Not such a bad deal actually.

There are many other forms and ways to invest your money. And a lot of it spiral into complex products that only specialized bank employees are able to understand. But one of the most common one is an option. I’ll touch on this a little but in no way do I think they are viable for beginners to fiddle with, but they do give the highest returns of up to 100 to 200% in a single day. This is because you can get a huge exposure with just a fraction of the money in your pocket. And I’ll leave this subject by saying that you could buy or sell a stock at later date without owning that stock, which is why it is so risky.

We’ll definitely revisit this topic and the many other investment products in future. But what this website aims to do is give you a sufficient base to build your knowledge upon.

I leave you with the constant reminder that we’re pinning for you to go do extra research to find out more about investing. And making your money work for you, so you don’t have to keep working so hard.

 

Royalty-free photo from Getty Images. Used with appreciation.

 

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