I?ve been an active investor in the stock market for a decade now and along the way, I?ve made many friends who share the same interest and passion for investing.
But because of many such friends I?ve gathered, investing had become such a big part of my life that I had failed to realise until recently that investors like us ? those who love digging into investing books and annual reports and talk stocks all day ? are the minority.
Most people do not invest actively and the data shows. Bourse operator Singapore Exchange Limited (SGX: S68) had previously reported that are…
I’ve been an active investor in the stock market for a decade now and along the way, I’ve made many friends who share the same interest and passion for investing.
But because of many such friends I’ve gathered, investing had become such a big part of my life that I had failed to realise until recently that investors like us – those who love digging into investing books and annual reports and talk stocks all day – are the minority.
Most people do not invest actively and the data shows. Bourse operator Singapore Exchange Limited (SGX: S68) had previously reported that are only around 800,000 active CDP (Central Depository) accounts in 2014. That’s less than 15% of Singapore’s total population of around 5.5 million (as of 2014).
For the majority who may not have an interest in investing and yet want to save and grow their wealth, what are the options available? Below, you can find the pros and cons of some ways to do so.
Property investing is a popular thing in Singapore. But, properties come with high absolute prices, and so it may not be a practical option for most people.
The high price also brings with it concentration and leverage risk as there are only that many properties that one can own and it’s likely that real estate buyers have to take on high amounts of debt to purchase a property. This can be akin to putting all your eggs in a basket (and a flimsy one at that)!
There are also actively managed unit trusts we can look at, which are professionally-managed funds that have a manager choosing stocks and/or bonds to invest in. But, these funds often come with sales commissions and management fees; putting aside the issue of the mangers’ skill, after accounting for the funds’ expenses, the returns investors get to enjoy may not be any higher than passively investing in the stock market (more on this later).
To the point, my colleague Chong Ser Jing has previously shared articles that relate to the corrosive effects of fees as well as how most mutual funds in the US (analogous to unit trusts here) fail to outperform the market (see here and here).
So before you decide on investing in unit trusts, know what you might be getting yourself into.
Unofficial investment schemes
There are also many other unofficial investment schemes being marketed. What do I mean by unofficial? These are schemes which are not regulated by the Monetary Authority of Singapore (MAS).
I have seen many such schemes that invest in gold, land, farms, foreign currencies, and even wine. They might sound sexy and hold big promise, but they lack regulatory oversight and that increases their risks significantly. Some might even turn out to be bona fide scams.
Stories of people losing their savings because of an ‘investment’ in these unregulated schemes are not uncommon. Just this February, there was a news report on more than 100 people having lost money in a purported gold ‘investment’ scheme that stretched across Singapore, Malaysia, and China.
Passive investing in the stock market
I mentioned about passive investing in the stock market earlier. In my opinion, the emergence of funds that passively track a broad market index has been a good innovation in the financial markets for many investors.
These passive funds can even be traded on stock exchanges like a normal stock (these are known as Exchange-Traded Funds, or ETFs). In Singapore’s context, there are two ETFs which track Singapore’s most common stock market index, the Straits Times Index (SGX: ^STI). Through the ETFs, investors can invest for the long-term and ride on the returns of the Straits Times Index.
The Straits Times Index ETFs require a much lower cost of capital as compared to properties (the capital outlay can be as low as a few hundred dollars per purchase). Meanwhile, the ETFs also generally have much lower costs as compared to actively managed unit trusts. And of course, these products are listed on Singapore’s stock market and are regulated by the MAS.
Passive investing in the stock market can be an avenue for people who want to invest for the long-term and yet lack the interest and time to actively pursue investing.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.