The investing journey waits for no one. You may not quite have hit your optimal salary bracket just yet, but that doesn’t mean you should procrastinate on working out your retirement plan. We all know that the interest rates we get from banks does not help us hedge against inflation.
Assuming you have a saving pool of $10,000 to invest in stocks. Having browse through the Singapore Stock Exchange, you look at your favourite blue chip company, for example, SingTel, trading at close to $3,890 per lot. The minimum purchase lot-size for Singapore listed securities currently stands at 1,000 units per lot.
You hesitate. Putting 80% of your money to just two lots of SingTel expose you to the risk of non-diversification.
Blue chips are no longer as expensive as before
Come this January, your favourite blue chip securities are no longer as costly as they used to be. The lot size for Singapore listed securities will be downsized to 100 units.
You can now purchase 12 lots of SingTel and still have half of your saving pool left for investment in other securities. Your portfolio can now be better altered in accordance to your risk threshold.
However, this will also mean that there might be an increase in volatility in prices for securities, and hence, investors are strongly recommended to “do their homework” before investing.
Common misunderstanding about penny stock
Penny stocks are defined as stocks trading at less than a dollar. The lower the price a penny stock is trading at, the more likely it is to be influenced by excessive speculation and market manipulation.
Due to the low trading price, it is common for investors who are in search for quick bucks to be investing in a penny. An example will be that an increment of SG$0.001 for a Cedar Strategic trading at SG$0.002 per unit will result in a 50% increase in price gain.
However, that would also mean that a fluctuation in trading price will result in a significant percentage loss.
In October 2014, Blumont Group Ltd, LionGold Corp and Asiasons Ltd crashed and wiped out about SG$8 billions in value.
And in March 2015, companies with a share price below the minimum trading price of SG$0.20 will be placed on a watch-list. Failure to meet the requirements within 36 months will result in the firm being delisted.
Unless you have a crystal ball that signals you the penny stocks of a firm which is the process of getting acquired by another firm and thus will significantly increase the share price, we would advise one to put a minimum portion of his or her savings in a penny.
To work towards your optimal retirement plan, besides saving to save, one should also save to invest. There are quite a number of financial products for one to choose from. With the new regulations for Singapore Exchange, one may wish to look at securities to achieve his or her objectives.