Saturday, 11 October 2014

How to Invest in Shares [Part 1]

I've received a few emails from different readers of my blog. One thing I noticed about was a very common question. "How do I invest in Shares?"

Well, I shall try to explain in a way that's as easy to understand as possible over the space of a 3 part blogpost. Before I begin, I should mention that I am in no way an expert, nor do I claim to be one.

The information in these posts are sourced from various books/websites and my own personal experience. And it is my wish that it could help someone else.

Here, I am assuming you could be someone who's thinking of investing but don't know how to begin. You search the web, you read books. Jargon like Equities, Investment, Analysis, Dividends, Returns, Earnings, Portfolios etc start jumping out at you. You find yourself amassing a wealth of information with completely no idea how to use it or what they stand for.

And then you think to yourself, Fuck this (If you'll pardon my language.) I'll figure this out some other time. And then you'll never know if ever will. Or maybe you just gave up. You decided your time would be better used for something else. And you walked away from something that might or might not have changed your life forever. I know, because I was in this exact position not too long ago.

The Internet is a well of information. If you already know what you're looking for.





But in most cases, you don't. But I digress.

I assume you're raring to go. Hungry to begin this journey. Let us begin then!

Things to do:

1. Know your goals and aims. (Eg: Long-Term for Retirement)
2. Know your Risk appetite. (Eg: High/Low Risk)
3. Know your Finances. Eg: (Capital)

Are you prepared to lose your investment money? Do you have an emergency fund/sufficient savings? Never invest your entire savings and run the risk of it being wiped out, effectively declaring yourself bankrupt. Only invest money you can afford to lose.



4. Choose a stockbroker.

Trust me, the above steps won't happen in the blink of an eye. But take the time to follow through. They will be your foundation for what's next to come. For example, stockbroker accounts don't open overnight. Entering without knowing your goals, risk appetite and financial capability is tantamount to showing you don't have a single clue about what you're doing.

I won't run away. This post won't run away. But once you're done with all that, you can come back here and continue reading :)

Moving on. Your first few steps after having your own account. You will of course, want to acquire some shares. What's your capital? It doesn't matter. It can be $100. It can be $1000. $10,000. Even $100,000.

But, firstly you're in Singapore. Where the annoying concept of board lot comes into place. 1 Share in Singapore can range from $3++ onwards. Board lot of 100/1000 means you can only purchase 100 or 1000 shares at any given point of time, which means a minimal starting investment of at least $300++ / $3000++ not yet including commission charged by brokers. Annoying isn't it? Yes I know, welcome to Singapore!


I would suggest to start out with blue-chip companies investment. Exchange Traded Funds tracking the index comes into play here. The Nikko AM STI ETF (G3B) and the Straits Times Index ETF (ES3). They are safer options. Note that safer does not mean no risk.

However, you can also choose to invest in individual blue chip companies like Starhub, Singtel, SPH etc. However as mentioned, their board lots are at 1000. Which would mean purchasing 1 lot, relatively difficult unless you have $5-10k lying around to use as capital.

All these is set to change come 19 January 2015, when the board lots are said to be reduced to 100. Well most of them anyway. So you have 2 choices. 1) Wait for 19 Jan 2015, which may or may not happen, and start saving to purchase when board lots are decreased.  2) Start now.

The cheapest alternative I can think of is Nikko AM STI ETF. Which is 100 shares / lot. The minimum investment would be $332++ with the current price of $3.32/share.

I recommend saving, then buying 1 share. Save again, then buy 1 share. Get some dividends on the way. When you reach say maybe 1000 shares you can then sell it (at a profit hopefully) and then use the money to buy something else. That way, you don't have to save $3k+++ before you do any trading. But it's your choice. Gain a little experience on the way. Think of it as levelling up. (Ah, Pokemon memories)

Keep in mind on the commission rates of various brokers!

That's all for now! I'll talk about Returns/ Dividends in my next post and what you can expect. Hope this helps!

Signing off,
Teenage Investor

Posts you may be interested in:
1. Rebalancing & Managing your Portfolio
2. The First Step is Always the Hardest
3. Journey of a Budding Investor
4. The Post for All Investors
5. How to Invest in Shares [Part 2]

2 comments:

  1. Hi TI, cool snapshot of how to invest.

    One point to add is the fee/commission. For smaller retail investor (like investing 100 shares in ETF), the minimum commission fee could come out to be very high % of the cost.

    Cheers!

    ReplyDelete
    Replies
    1. Hi Richard! Thank you!
      Agreed on the commission!

      Delete