This post was first published on 27 November 2017 and has been updated to include the latest information.
This article is part of a DollarsAndSense.sg collaboration with For Tomorrow. For Tomorrow is brought to you by Temasek, in partnership with MoneySmart and DollarsAndSense. All views expressed in the article are the independent opinion of DollarsAndSense.sg.
When you’re ready to start investing, the stock market can be one of the first places you turn to. Most Singaporeans, even if they never invested before, know about the stock market, or more specifically, the Singapore Exchange (SGX).
The SGX acts as a marketplace for people to buy and sell stocks. For many, when you start investing, you will likely turn to an online platform to carry out your trades and start building your investment portfolio.
For a start, you may think of investing in well-known companies in Singapore, such as DBS, SingTel, OCBC, Keppel Corp, UOB, CapitaLand and more. These companies are all listed on the SGX and you can start adding them to your portfolio.
The SGX isn’t a grocery store where you can go to see, smell and touch what you’re actually buying and put them into your shopping cart. So, how do you start investing in these companies? Here’s a step-by-step guide to getting started.
#1 Open A Brokerage Account
Before you start buying stocks listed on the SGX, you first need to open a brokerage account. Having an account with an authorised broker gives you access to buy and sell stocks on the SGX. There are many stock brokerages in Singapore that you can choose from. Here’s a list of the stock brokerage firms in Singapore.
- CGS-CIMB Securities
- Citibank Brokerage
- DBS Vickers
- Interactive Brokers (IBKR)
- KGI Securities
- Lim & Tan Securities
- Maybank Kim Eng (MBKE)
- moomoo (by FUTU Holdings)
- OCBC Securities
- Phillips Securities (POEMS)
- Saxo Capital Markets
- Standard Chartered
- Tiger Brokers
- UOB Kay Hian
You would notice that many brokerage firms are either directly linked or have some form of affiliation with a commercial bank operating in Singapore. There are also overseas digital brokers coming into the scene with Interactive Brokers, moomoo and Tiger Brokers.
Which Brokerage Firm Should You Choose?
The first thing most investors look at is the commissions charged by the stock broker. A quick check across brokers in Singapore would reveal that most firms charge similar commission rates between 0.08% and 0.28% of trading value, or a minimum of between $10 and $28 per transaction. This would also vary depending on the type of trading account – CDP-linked or custodian – you choose to open.
Aside from commission charges, there are several other factors you should also consider when choosing a firm.
Fund Transfer: When you buy stocks, you need to think about how you’d like to pay for them. Some investors may find it more convenient to open a brokerage account with a bank that they already have an existing savings account with.
For example, if you already have an OCBC savings account, you may prefer opening a brokerage account with OCBC Securities. By doing so, stocks that you buy can automatically be paid for using money in your designated OCBC savings account. When you sell stocks, the money would be automatically credited into the same account.
You can also easily link your bank accounts with any brokerage accounts that you open in Singapore. You can then simply make an Electronic Payment for Shares (EPS) via online or at Automatic Teller Machines (ATMs). You may also choose to make payment via GIRO.
Overseas Investments: You may be starting out your investing journey with stocks listed on SGX. As you become more experienced and confident, you may venture into investing in overseas markets as well. Many of the local stock brokerages also allow you to invest in some of the regional and major overseas stock markets, including US, Hong Kong, China, Malaysia, Thailand and others.
Do note that buying and holding overseas stocks tend to come with additional charges, including currency conversion rates and fees associated with custodian accounts.
Platform: Not all brokerage platforms are built the same. We suggest trying out a demo account whenever possible with the brokerage to sample the service and platform. If you can’t try a demo account, you can find out from more experienced friends about how user-friendly the platform is before you open an account with any stock brokerage firm.
#2 Open A CDP Account
If this is your first time buying stocks in Singapore, you also need to open a Central Depository (CDP) account.
Think of a CDP account as a vault that stores all the SGX stocks that you have bought in a centralised location. In most cases, when you buy a stock through a brokerage firm, the firm doesn’t keep it. Rather, it goes into a CDP account held under your name. The benefit of this is that you can easily move to another stock brokerage firm to continue buying and selling without worrying about your holdings.
Do note that not all brokerage firms will automatically deposit the stocks you bought through them into your CDP account. For example, FSMOne and Standard Chartered do not offer CDP-linked accounts and will hold the stocks you bought as a custodian on your behalf. Similarly, the stock brokerage firms that do offer CDP-linked accounts also offer their own custodian accounts.
Custodian accounts tend to offer lower brokerage fees as your securities are kept with them, and you will be retained as a customer rather than easily shifting to another stock brokerage firm. However, custodian accounts come with certain fees and charges that you should know as well.
#3 Start Off With A Strategy
When you are new to investing, it’s easy to become too excited, leading to you doing too much too quickly – which is typically a bad thing for new investors.
For a start, set for yourself small and realistic targets. You can start off with broad-based country index investing, putting a small amount of money into the Straits Times Index (STI) Exchange Traded Fund (ETF) each month. Index investing enables you to get exposure to a diversified portfolio of high-quality companies on the stock exchange. Along the way, you can slowly add individual companies in Singapore and gradually add foreign-listed stocks into your portfolio, or even venture into other asset classes, such as bonds and commodities or even derivatives.
Your initial strategy should also include how much money you are investing and how often you would invest. Even if you already have $20,000 set aside to invest, it doesn’t mean you should plough it into the stock market all at once. Instead, you can space out your investment over time.
Commonly referred to as dollar cost averaging (DCA), this strategy, allows you to invest without worrying about timing the market. You simply buy more shares when prices go down, and less shares when prices go up as you invest at regular time intervals.
Always remember that your investing journey is a marathon and not a sprint. You want to start off at a pace that you are comfortable with and take it from there, rather than sprinting out of the gates and make unnecessary, and costly, mistakes.
Neither are you racing against other investors. Hence, do not simply copy the investment strategies of other investors without first understanding for yourself why each investment strategy may or may not work for you. Always bear in mind that other investors may have their own risk appetite and investment time horizon.
#4 Understand The Various Types Of Assets On The Stock Exchange
It’s easy to assume that you can only find stocks on the stock exchange. While that might be true when SGX first started in 1973, today’s exchange comprises various asset classes beyond just stocks.
For example, you can find retail bonds on the exchange. These include bonds issued by Temasek Holdings’ backed Astrea (Astrea IV4.35%B280614, Astrea V3.85%B290620 and Astrea VI3%B310318), SIA 3.03% 240328 and Aspial (AspialTrea 5.25%b200828).
Unlike stocks, where people invest with the hope that prices appreciate over time as the companies grow, bond prices do not fluctuate as much and are generally traded near the price they were first launched at. That makes it a more stable asset class with predictable cash flows. Other asset classes you can find on the exchange include real estate investment trusts (REITs), exchanged traded funds (ETFs), warrants and daily leveraged certificates (DLCs).
This makes it important to understand what it is that you are investing in, especially since some of these investments carry much higher risks.
#5 Constantly Review Your Strategy And Investment Objectives
Once you get familiar with investing, it’s easy to continue building on your knowledge to learn more and to try out new strategies in order to make better returns. That’s fine.
That said, it’s equally important to ensure that new strategies you introduce fall in line with your overall investment objectives. For example, your original plan may have been to invest in high-quality dividend-paying companies primarily to build a secondary source of income.
Along the way, you will definitely start reading up more and have conversations with friends and relatives who are in the “know”. This may lead you to invest in companies on rumours or media hype, in the hopes of making a quick buck if the company turns around in the future. This buy-low sell-high strategy would be very different from what you originally set out to do.
Always take the time to periodically review your strategy to ensure that it’s in line with your objectives.
Start Investing Today
There are of course many other areas of investing that you also need to learn. You can even read the articles we have written about various types of investing mistakes that people make. In the meantime, we always advocate for people to start investing early to benefit from a longer time horizon for their money to grow and ride out volatility.