First-timer's Guide to Investing in Singapore

This guide will cover the basic fundamentals about investing in Singapore for the average Singaporean. It includes the basic and popular forms of investment here which is the Singapore Savings Bond and the Stock Market, and give a good foundation as to how the investment instrument works. It will not include recommendations on what to invest in nor an in-depth analysis of the market. This is a purely layman's guide for the first-time investor.

1.       Singapore Savings Bond (SSB)

The Singapore Savings Bond is a type of government bond. A government bond is a way in which a government is able to raise cash quickly to be used for government related projects or investments. In a way, when you buy a government bond, you are essentially loaning your money to the government at an interest stipulated which is determined by the treasury issuing the bond. 

The Singapore government issues the Singapore Savings Bond (SSB) every month with differing interest rates depending on the conditions of the economy. SSBs form a better way to earn money compared to just saving in the bank. If you save in the bank, the interest rate is probably around 0.05%. That means when you save $1 000 in your bank, the bank pays you back just 50 cents every year.

But when you purchase SSBs, you will accrue higher interests. For example, the Bonds that you can buy in June 2019 has an interest rate of 1.93%. That means, when you put in $1 000 to buy the bonds, the government will pay you back an additional $19.30 every year. The interest also increases the longer you do not sell the bond back to the government. If you keep for 5 years for example, the interest increases to 2.09%.

The amazing thing about SSBs is that it is very liquid in the sense that you can get your money back anytime you want, you just have to write in some paper work. Hence, it is about the same thing as just saving your money in the bank. There is also almost no risk involved because the only risk that you lose your money is if the Singapore government defaults on the bond repayment for some reason. As the Singapore government is relatively stable with a healthy reserve, the risk would be relatively low compared to less stable government bonds elsewhere.

Buying Bonds compared to saving in the bank:

Year	If you save in Bank	If you buy Bond
1	$1000.50	$1019.30
2	$1001	$1038.60
3	$1001.50	$1057.90
4	$1002	$1078.00
5	$1002.50	$1098.90
6	$1003	$1120.40
7	$1003.50	$1143.10

To start buying SSBs, you will first have to create a Central Depository (CDP) Account and have a local bank account (DBS/POSB, OCBC or UOB) linked to your CDP account. The steps to do so can be easily followed online. Link: http://www.sgs.gov.sg/savingsbonds/Your-SSB/How-to-buy.aspx 
The minimum capital required to buy the bond is $500 and you can purchase in multiples of $500 but for each transaction (to buy or redeem), there is a standard fee of $2.

2.       Stock Market

If you think that the interest rate for SSBs is too low and you want to try a different investment instrument, then you can also look into the SGX or Singapore's stock market. When you invest in the stock market, there are higher risks involved but there are also more opportunities to earn more from your savings.

The Stock Market is a way for companies to raise a lot of capital or money for their own business needs. These companies offer stakes or shares of their company in return for your money hence in this agreement you get to 'own' part of the company. The company can then use your money for needs such as to buy more assets like properties or factory equipment or for research and development.

There are two ways you are able to earn money in the Stock Market. One: Dividends. Two: Share price.

Dividends are like interests. Companies reward people who invest in their company, or they could share part of their profits with their investors. They do that by paying dividends back to the people who invest in their company. For example: DBS bank pays 4.95% dividends to investors that invest in their company in 2018. That means if I own $1 000 worth of DBS shares, DBS reward me with $49.50 for the year 2018. Usually, the Dividend rates are greater than the interest rates from the Singapore Savings Bonds. Compare DBS Dividend rate of 4.95% to SSB interest rate of 1.93%.

This dividend rates depends on the companies and the type of companies issuing the shares. Some companies don’t pay Dividends at all while some pays low Dividends like 1% but some companies can pay up to 10% Dividends. It is your responsibility to research why companies fixed their Dividends rate as such because high dividends does not normally translate to higher returns as you will also have to take note of the Share Price of the shares that you bought too.

Share price is the price of the stock itself. When you buy stocks, you can buy according to the market value at the time you buy the stock. For example, the DBS share price as of 7 June 2019 is $24.15 for 1 share. This price will rise and fall as long as the market is open. If the market that the company is involved in and the company itself is doing financially well, the price can increase but vice versa, the opposite can happen to. If the price go up after you buy the stock, then you can sell and earn money straight away. However, do note that you will also need to pay a certain fee to your stock broker each time you buy or sell the stock. Stock brokers are the person or company that helps you buy and sell on the stock market and is a must for anyone interested in investing in the Singapore stock market.
Once you sell your share, you cannot earn their Dividends any longer.

There are many different types of companies that list their stocks or shares on the Stock Market. For example, there are Real Estate Investment Trusts (REITs), oil companies, retail companies, banks and many more, but they all work the same: Share Prices and Dividends. When the general economy goes bad, it does not necessarily mean that the market in which your company that you invested in will also see a downtrend. You will have to understand the market of the stocks in which you are buying in order and the potential news or situation in the world that could affect the share prices or dividends of the stocks.

To start buying shares in the SGX, you will have to own a Central Depository (CDP) account and accrue the services of a stock broker. The stock broker can be any company or persons that have the legal authority to deal in the Stock Market and they will help you to purchase the stocks that you want for a stipulated fee. After engaging a broker, you will have to open a brokerage account in which you will be able to put in the capital to start investing in the stock market. The minimum amount you can invest depends on the shares that you are investing in but in the SGX, you are only allowed to invest in Lots of 100 shares. Hence, if you intend to purchase 1 lot of DBS shares (Code: d05) which is $24.15/ share as of 7/6/2019, you will need to invest a minimum of $2 415 or have that amount in your brokerage account.

Hence, I have explained the fundamentals of the more common and popular investment instruments here in Singapore. I hope that it will be beneficial to all who reads them. Do follow my blog posts for more guides that you may be interested in and have a great time investing!