If you are a new investor who is just starting out, aside from mutual funds, one of the first things that you would probably be interested to find out more about is likely to be stocks, or otherwise known as equities.
This is because it is widely believed that a well-planned out stock investment strategy is a viable way to accumulate wealth in the long term. Stock trading also happens to be a less intimidating way to dip your toes in the world of investments as it is relatively convenient and inexpensive these days. Last but not least, it is probably better than just leaving the whole amount of your money in a savings account and earning the paltry interest rates that are on offer from the banks right now.
So if you are keen to add stocks to your investment portfolio, here are eight steps to get yourself started. Before you even buy your first piece of stock, it is prudent to firstly align your expectations with the corresponding risk that stock trading entails before putting your money into it. Investing in stocks is usually more suited to those with a higher risk appetite and who are not content with the relatively lower potential returns you will receive from mutual funds.
It also requires you to be more of an active investor and thus ends up taking up more of your time. This is because holding just one, two, or even a small number of stocks means that your risk is not as spread out as compared to when you are invested in a mutual fund, which in essence consists of a diversified portfolio of stocks. As such, you need to constantly be on the alert to monitor your holdings in case the market turns against you at any given time.
To start trading stocks in Singapore, you would need a CDP securities account. The CDP account safeguards the shares you have purchased in the local stock market.
There are three types of CDP accounts that can be opened — individual, joint and corporate account. But in this article, we will only be focusing on individual accounts. Mailing in the application form and supporting documents. That way, you can open your trading account too and link them at the same time. Your CDP account can be linked to multiple brokers and holds all the shares you have purchased through your brokers.
A trading account or brokerage account is an account you have with a brokerage firm that enables you to buy and sell shares. Before making your decision on which entity to open an account with, it would be advisable to do some information-gathering to compare them in terms of fees, services, research tools and other aspects. Here are some brokers and banks in Singapore where you can open a stocks trading account:.
It is also important to always ensure that your broker is properly licensed. You would typically be depositing at least a few thousand dollars into your trading account and you want to make sure that your money is in safe hands. Also, do not fall prey to online brokers that offer cheap fees! Trading with them may put you at risk. Ensure that you find out about their reliability through online forums and user reviews before committing to opening an account with them.
The entire process of creating a trading account and CDP account should take less than 10 working days to approve. If you do not yet have a bank account in Singapore or would like a separate bank account just for trading, you can open one over the counter when you head to open your trading and CDP account at the brokerage firm. But with so many stocks out there, how can you decide which ones to pick?
The first step is to determine how much of your capital is going to be allocated to stocks. Furthermore, it would be advisable to have the mindset that the cash you set aside to invest in the stock market should be money that you can afford to lose. For years, a common rule of thumb has been used to simplify the asset allocation process. Basically, this theory states that you should subtract your current age from — and the resulting number is the percentage of your portfolio that you should keep in stocks.
However, there are those who claim that this approach is now outdated and no longer applicable. Thereafter, assess your personal risk appetite. Risk and returns usually go hand-in-hand; so if you are seeking higher returns, you should expect a higher level of risk, and this applies to stock-picking too. For those who are more risk-averse, a good tip is that if you happen to prefer low-risk investments, and are looking to hold for the long term, you might want to look at blue chip stocks with a high dividend yield.
Blue chip stocks in Singapore are known to be popular, not just with fledgling investors, but also even with the seasoned veterans. As mentioned earlier, investing in just one single stock or even a few different stocks can be a high risk, high reward endeavor. As such, another way to try and reduce risk is to have enough diversification in terms of your stock holdings so that there is a balanced look to your portfolio that can help counteract underperformance in a particular segment.
You should also cultivate a habit of keeping yourself up-to-date on daily financial news and data such as earnings reports, changes in government policies, employment figures, central bank interest rates, commodity prices and other crucial bits of information that could help you in your investment decision-making. There are two methods of analyzing stocks: These two methods need not be mutually exclusive; in fact, many investors use a combination of both in order to help them with their stock selection.
No one type of analysis is better than the other, so do explore both and find out for yourself which one suits you better. Technical analysis is essentially the study of supply and demand forces for tradable instruments in a particular market. The objective is to try deciphering the market signals so as to predict the future price movements of those said instruments. Technical analysis is recommended for those who are comfortable with charts. Its advantage is that it can be used in a whole range of time frames depending on the user — intra-day, daily, weekly and even beyond.
An expert in technical analysis even developed a new approach that enables investors to use multiple time frames and integrate them in order to identify both medium and long-term trends. Fundamental analysis is the study of the financial health of the actual underlying company to determine the value of the stock. This involves inspecting the 3 financial statements: By value, we are considering the current price of the stock relative to a specific performance metric such as sales or profits.
There was even a study that concluded that to obtain the best long-term returns you should focus on stocks that are trading at the lowest valuations, i. It might also be a good idea to attend investment-related events. Securities firms, such as Maybank Kim Eng, also often organize seminars of their own to educate the public on investment matters.
Look out for them! Sometimes, they might even host it free. You could even learn from the comforts of your home by logging on to online webinars such as those conducted by IG Singapore. You can even trade your stocks online.
Some online platforms are customizable and equipped with comprehensive trading tools that can help you monitor your stocks, as well as make better trading decisions. Here are some online platforms that can help you in monitoring your stocks, as well as assist you in deciding which stocks to invest in:. You will even be able to access your watch-list, indices and quotes on the go via your Apple Watch!
IG Singapore offers both a web-based and a mobile app for their online trading platforms. Investing in stocks can be an emotional affair. It is the nature of the stock market for prices to rise and fall, sometimes by a substantial amount. As such, it is crucial to get a handle on your feelings and not fall into the trap of getting sucked into trends and hearsays without conducting your own necessary due diligence. As the wise Oracle of Omaha, Warren Buffett , would say: If you have already done the necessary groundwork in terms of your stock-picking process, you should not be distracted from your investment thesis.
Even if things do not seem to be going your way, do not make premature knee-jerk reactions without assessing the situation rationally. Be disciplined and stick to your original investment game plan so that you can achieve your long-term goal. Samantha is a new financial journalist with a hunger for knowledge. Samantha is a huge animal lover and volunteers at adoption drives during her free time.
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Investment Stocks - Advertisement -. Samantha Chiew Posted On January 19, Be clear on your objectives and what it takes Before you even buy your first piece of stock, it is prudent to firstly align your expectations with the corresponding risk that stock trading entails before putting your money into it.
Open a central depository CDP account Source: You may also like Singapore stock investing: These stocks moved the Singapore market in November November 29, Sign up for our monthly newsletter and receive the latest in investment insights, expert opinions, money tips and much more.