Despite all the advice that we read, many of us who are starting out on our investing journey have that burning question; where do I start?
Understanding what you need to buy can actually be “half the battle” of starting your journey.
Emotionally, there are many things holding us back when we start investing, from loss aversion to the fear (all investors have) that we’re buying at an all-time high.
When we buy stocks though, we have to remember that we are investing in real everyday businesses, from the likes of local lender DBS Group Holdings Ltd (SGX: D05) to coffee giant Starbucks Inc (NASDAQ: SBUX).
However, the best advice for anyone starting out is to invest in exchange-traded funds (ETFs). These offer you broad exposure to a basket of stocks at a very affordable price.
Before we start investing, though, we should have a few things sorted out – such as an emergency cash fund and adequate insurance coverage.
With that out of the way, for anyone wanting to invest, here’s how you can go about putting your first S$1,000 into the markets.
S&P 500 ETF
The world’s largest stock market can be found in the US. The country has many of the world’s biggest, and most innovative, companies.
Given that, having exposure to the US stock market isn’t just a “nice-to-have”, it’s a “must-have”. So, what’s the best way to invest in it?
Buying an ETF of the S&P 500 Index. The index, which is made up of 500 of the biggest companies in the US, offers investors a quick way to gain exposure to it.
The Vanguard S&P 500 ETF (NYSE: VOO) is probably one of the best options given the low expense ratio (basically how much you’re paying in annual fees to the ETF provider).
With an expense ratio of only 0.03%, the Vanguard S&P 500 ETF offers incredible value to investors who want to just buy and hold a basket of stocks for the long term.
At just over US$400 a share, buying one share will set you back around S$540 at the current exchange rate.
Singapore REIT ETF
For any new investor, the benefits of investing in property through real estate investment trusts (REITs) are well established.
So, if you want property exposure in the stock market, buying REITs is probably the best way to get it. However, like stock-picking, it can be difficult to do successfully if you’re just starting out.
In that sense, a REIT ETF solves the problem. Here in Singapore, if you’re looking for REITs that are listed locally, then the Lion-Phillips S-REIT ETF (SGX: CLR) is the best way to gain exposure to the sector.
However, with a relatively higher expense ratio of 0.5% you will have to be shell out more in fees to hold this specific ETF.
You’ll find all the best-known Singapore-listed REITs in the ETF, with Mapletree Logistics Trust (SGX: M44U), CapitaLand Integrated Commercial Trust (SGX: C38U) and Keppel DC REIT (SGX: AJBU) taking up some of the top spots in terms of weighting.
With shares costing S$1.12 apiece, new investors could buy four lots (one “lot” equals 100 shares) which would cost around S$450 and give them 400 shares.
Diversify and be patient
With one share of an S&P 500 ETF and 400 shares of a Singapore REIT ETF, that’s around $1,000. It’s certainly a good foundation to build on.
That’s because you have broad exposure to some of the largest companies in the world (in the US) as well as property and income-generating assets in Singapore.
One other great thing about Singapore REITs is that many of the biggest ones are now going overseas to acquire real estate assets so that gives you further diversification in your REIT holdings.
Finally, for investors starting out, remember that investing is a long-term journey to grow your wealth. Diversification, and more importantly, patience will be your biggest assets in helping you reach your goals over time.
Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of Mapletree Logistics Trust and DBS Group Holdings Ltd.
