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.
Because of my circle of friends investing has become a big part of my life. However, I had failed to realise, until recently, that investors like me ? those who love digging into investing books and annual reports and talk stocks all day ? are in the minority.
Most people do not invest actively and the data shows. Bourse operator Singapore Exchange Limited (SGX: S68) has revealed that there are only around 800,000 active CDP (Central…
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.
Because of my circle of friends investing has become a big part of my life. However, I had failed to realise, until recently, that investors like me – those who love digging into investing books and annual reports and talk stocks all day – are in the minority.
Most people do not invest actively and the data shows. Bourse operator Singapore Exchange Limited (SGX: S68) has revealed that there 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.
For the majority, who may not have an interest in investing and yet want to save and grow their wealth, what are the other options? Below, you can find the pros and cons of some of them.
Property investing is popular 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 the risks of concentration and leverage as there are only a limited number of properties that anyone can own. It’s also likely that real estate buyers have to take on high 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 the stocks and/or bonds to invest in. But, these funds often come with sales commissions and management fees. After accounting for them, the returns that investors could get to enjoy may not be any higher than passively investing in the stock market (more on this later).
To that point, my colleague, Chong Ser Jing, has previously shared some 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 letting yourself in for.
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, but they lack regulatory oversight and that increases their risks significantly.
Some might even turn out to be scams. Stories of people losing their savings in these unregulated schemes are not uncommon. Only in February, there was a report that more than 100 people have lost money in a gold ‘investment’ scheme that stretched across Singapore, Malaysia, and China.
Passive investing in the stock market
I mentioned passive investing in the stock market earlier. In my opinion, the introduction 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 capture the returns of the Straits Times Index.
The Straits Times Index ETFs require a much lower cost of capital 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 regulated by the MAS.
Passive investing in the stock market could 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 writer Stanley Lim does not own any companies mentioned above.