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The Most Important Thing to Do Before Investing

A question many new investors ask is how to get started in investing. Investing does not merely start with opening a brokerage account or buying your first stock. Investing starts with the end in mind. What would you like to achieve in the future would be the first question to ask yourself.

Let’s take a hypothetical example of a couple who are both 25 this year and have applied for a BTO. They have used their CPF and a small cash loan from their parents to settle the 10% down payment and plan to repay their loan via their CPF Ordinary Account contributions in years to come. There is no cash outflow in purchasing the house. However, renovation, furniture and appliances will have to be paid in cash. They will get the keys to their flat in three years’ time and they intend to save $60,000 for these cash expenses. This works out to a savings of about $1,700 per month.

Now, we have the three requirements to their financial planning. One, the investment horizon is three years. Two, they need to achieve an amount of $60,000. Three, they have a very low risk appetite since they clearly need to spend this cash once the flat is ready.

What options do they have?

They can leave the cash in their deposit accounts (hopefully a salary account with increased interest), they can put it into fixed deposits with varying tenors, or they could buy a Singapore Savings Bond that pays at least 1% annual interest.

This simple example with its small returns probably doesn’t sound interesting to you. But, it does illustrate an important point. If you don’t know where you are going, any road will take you there. If you know where you want to go, then it becomes your path of action.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.