How to invest and set up a financial plan – a starter guide

How to invest and set up a financial plan – a starter guide

Retiring?

Have you recently heard of the term “F.I.R.E”- Financial Independence Retire Early? If you are reading this, congrats! You have taken your first step towards retirement! While it is important to invest, earning big bucks from investments alone is not an easy thing to do for an average joe like you and me. However, investing is a necessity. Quoting Warren Buffet, “If you don’t find a way to make money while you sleep, you will work until you die.”

Set a financial goal

An objective comes with every plan, financial planning is no exception. Your first step is to have a clear financial goal allows you to stay emotionally invested, understand your financial situation, and the path the way ahead. You can use a mind map or a timeline to achieve this.

A financial timeline example. Source: Reddit user

You should include your upcoming large expenses such as BTO, renovation, or even school fees. Other considerations can include bonds, ILP or endowment plans maturity dates.

In addition, you may also want to be clear on how you want to achieve, F.I.R.E, the types of F.I.R.E.

Settle your debt and insurance coverage

You would want to settle bad debts first, as they will often have a negative, large impact on your wallet.  What is considered bad debts? A general rule of thumb would be debts with a high-interest rate (typically 4% or more). Examples are credit card debts or car loans, repay them ASAP. On the other hand, you have good debts which you can take advantage of by investing in assets that offer more than the debt’s interest rates. Examples are student or mortgage loans, where the interest rate is usually low enough that investing in the SNP500 index will yield a positive outcome.

Next, is your insurance. Prioritise your insurance coverage before you start investing (run from any financial agents that tell you otherwise). I found a pretty good guide here. Hospitalisation plans should be a priority as they can make or break your bank since they cover medical bills that would otherwise take away a large sum of your life savings. You would want an agent that you trust to help you settle all this paperwork. Source: myself – a 26-year-old that has entered the emergency ward multiple times since young, each time insurance absorbs most if not all of my medical bills that can cost up to 20k, especially major surgeries.   

Set aside your emergency savings

Save or Invest? Source: NTUC Income

Once you have settled your debts and insurance, make sure you have a sizable amount of emergency savings to tide you through the worst (recession, financial crisis, medical emergencies etc), a good benchmark would be six months’ worth of your monthly income. Keep it in your bank as you will need the liquidity (how fast you can use the money). Any extra amounts can be saved in bonds, fixed deposits, and cash management portfolios like Syfe cash+. I would recommend Dash Pet since it offers up to 1.5% on your first 10k since it is quite popular these days.

Decide your investment strategy

An investment strategy could include many aspects, here are a couple of questions as a checklist.

What types of asset classes do you want to invest in?

Stocks, exchange-traded funds (ETFs), Robo-advisors, Real Estate Investment Trusts (REITs), bonds, or even property.

What is your risk level?

Crypto and Equitites are the riskiest, while bonds or property are probably safer.

What is your portfolio allocation?

You will also need to decide your portfolio allocation. Diversification is important to avoid placing all your eggs in one basket. Boglehead is a simple strategy you can use to diversify with much effort. FIREPATHLION’s guide here is a good example. However, Singapore’s STI ETF has been facing stagnant growth as compared to the rest of the world, so you may want to consider replacing it with China ETFs such as 3067 or MSCI China. In my opinion, China’s economy will dominate the markets in the years to come.

Diversification

Diversification helps to mitigate risk and prevent you from placing all your eggs in one basket. However, too much diversification is not good. Quoting Warren Buffet, “Diversification is protection against ignorance. It makes little sense if you know what you are doing.”

So too much or too little is both wrong. What is the right amount? This all depends on your risk level. If you are feeling risk averse, you can consider safer asset classes like Singapore Saving Bonds (SSB), T-bills, property, or REITs. If you are on the opposite end of the spectrum and like to take on additional risk for a higher return, you can consider a heavier allocation wards Stocks, ETFs, or even crypto. A traditional portfolio is 60% in stocks, and 40% in bonds but you do not have to follow it strictly to the book, play around with the allocation!

This is an example of portfolio allocation.

  • International ETF -VWRA (50%)
  • US ETF- CSPX (10%)
  • China ETF- (10%)
  • Individual stocks- (10%)
  • SSB/T-bills – (5%)
  • Crypto – (5%)
  • Cash/Warchest- (10%)

Too confusing? Start with Robo-advisors, you can view their review of their performance here, I update their performance monthly, so stay tuned for more!

Do your research

Doing your own diligence is also a well-known concept. You do your research to build your conviction. Indeed, the keyword here is conviction. The purpose is to build your conviction aka belief towards that asset to last through a bear market. This is sometimes also known as fundamental analysis, where you analyze the foundations of a particular company without looking at the chart.

Some examples you can take a look at are:

  • Stocks- P/E ratios, financial statements, cashflow.
  • ETFs- Expense ratio, AUM, and liquidity.
  • Crypto tokens- whitepaper, founding team, and community to determine its value

While technical analysis is not needed, it would be beneficial.

Open a brokerage, exchange or Roboadvisor account

Your next step is to decide which brokerage or exchange suits your needs. There are many deciding factors that you should consider before opening it. While there are few downsides to opening an account, it could take several days to a week to open one and you may miss the best days of the market while sitting on the fence. Therefore, the best way is to open 2-3 different platform accounts so that you have a backup. To top it off, their sign-up bonus are usually attractive to attract investors to open an account with them, these can be in the form of shares or discount vouchers.

Here are some popular options that I will suggest:

Brokerage accounts

Crypto

For more info on Robo advisors check out my other article!

Start investing!

Once you have decided what type of asset you want to invest in, you may start buying! Keep in mind the portfolio allocation, commission fees, and market conditions or sentiments.

Keep a watchlist

Your work is not done after you bought your desired asset! You should keep a watchlist to track your investments, together with news monitoring. Did the company run into cash flow problems? What does the community think of the recent layoff? Additionally, check out my resource page here for community groups and don’t forget to join my Tele channel for more updates!

It is okay to make mistakes, whether you lose your savings or are looking at a negative ROI. We can take the lesson as an experience, to improve and refine your investment strategy. It is better to lose 10k than to lose 100k or your renovation money when you start later. If you have already started, that’s great, if not what are you waiting for!

Finally, don’t be the last person on the block to start investing — you don’t want to work till you are old!


If you have not signed up for any of the accounts, you may use my referrals below or your friend’s and get rewards in the form of stock shares or vouchers!

Brokerage accounts

Crypto

Kucoin – r3Z3UV8

FTX

CDC referral code- c3y3meg5sn

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