SINGAPORE (Jan 22): If you’re in your thirties but haven’t already started investing your money, here’s good news: it’s not too late! This is actually a great age to start – you’re financially more stable, and more mature than you were in your 20s, and you have a good number of years ahead to ride through risks.
Retirement may not be on the cards when you’re in your 30s. Life is only just beginning; your career is taking off, you are likely to be earning more and having a bigger capacity to spend on travelling and other luxuries. You may even be looking to explore buying a home, or starting a family at this stage.
Singapore is one of the most expensive cities in the world. And with increasing costs of living, it is almost impossible to subsist on one source of income alone if you are looking to enjoy your retirement comfortably.
If you’ve been exploring options but don’t know where to start, here are some tips.
1. Determine your investment risk tolerance
Before you begin to look at stocks to invest in, you should calculate your risk tolerance based on a number of factors. No one wants to lose money in the stock market, but some are comfortable with losing a larger amount than others. Therefore, take some time to:
- assess your willingness to take risks,
- understand how much money you are potentially comfortable with not earning back if you’ve made a bad investment
- take into consideration any big-ticket items you are looking to purchase in the near future, expected commitments, and your annual income forecast within the next five years,
- see how much time you will be spending tracking your investments, and
- whether you’ve had any previous experience in riding the markets.
2. Set your financial goals
What do you want to achieve out of your investments, and how much time do you want to spend on them? Do you intend to be an active or passive investor? Do you want to eventually leave your full-time job and live off your dividends or investments, or is it a way to make side income without spending too many hours on it?
Knowing your five- or 10-year plan will help your decision-making process when you finally step into the market.
3. Amass enough savings and pay off your debts
While it’s better to begin investing earlier, you should take care of your own needs first. This means you should have enough for your necessary expenses, and for a rainy day. You should also pay off your debts that have high interest rates. You don’t want to end up having to liquify your assets prematurely while trying to settle your outstanding debts in future. It is prudent to save about six months’ worth of your living expenses in order to tide you through unexpected emergencies. We recommend up to 12 months, just to be extra careful.
Once you have reached your target amount, start apportioning your salary by following the 50-20-30 budget rule popularised by Senator Elizabeth Warren: up to 50% on expenses, 20% on savings, and 30% on other items.
4. Buy the insurance policies you need
There are some things you should not scrimp on, and insurance policies are one of them. Life policies and policies that cover your medical expenses in the event of severe illnesses will help tide your family through if necessary.
5. Do your research
Minimise risks by knowing what and where to put your money in. It may determine how much money you make or lose, and it’ll help you worry less about your investments. Whether it’s shares, ETFs, REITs, forex or bonds, familiarise yourself with what you are investing in.
There are also a ton of resources you can look to for help these days. Do a simple search on the internet, and you’ll receive more than a few results that may help. Speak to your bank’s financial advisor, a friend or relative in the know, or even a robo-advisor like StashAway or DBS’s digiPortfolio. Familiarise yourself with charts and trends by looking to investment seminars and academies like SGX and Moneysense, a website run by the government.
And, of course, don’t put in more money than you can afford to lose, nor put in all your money at one go.
6. Start with what you are comfortable with
This depends on your personal risk assessment or growth appetite, and how much you can afford to lose. Keep your expectations in check though, and don’t panic. You will need to have the stomach to ride out the lows in the market cycle. Keep in mind that you have about 30 years ahead of you to accumulate funds for your retirement, and the returns may outweigh the potential losses.
7. Diversification and balance is key
Don’t put all your eggs in one basket. When you’re in your 30s, time is still on your side; you can consider a mix of assets based on the number of years you have left till retirement. According to Forbes, one rule of thumb for a “conservative starter portfolio” is to have equal thirds of stocks, bonds, and inflation securities (like gold in Singapore or US Treasury Bonds that help protect you against inflation). But of course, this isn’t one-size-fits-all, and shouldn’t be the defining principle by which you run your investments. At the end of the day, you should always invest in what you feel comfortable with.
8. Set up your CDP and brokerage accounts
You will need a CDP or Central Depository account to start; this acts like your bank account, where your stocks, bonds, and securities, are stored. Once that’s set up, you can then open a brokerage account and link it to your CDP account to start transacting. There are several brokerage firms in Singapore, each with their own pros and cons. You will also have to take note of the commission fees they charge, and the services they offer.
9. Don’t wait
The earlier you start, the less money you’ll need to enjoy more savings – thanks to compound interests. Remember: The hardest step is taking the plunge and actually starting to put your money where your mouth is. But once you have done the necessary research and analysed your risk assessment, put your newfound knowledge to good use!
See also: Are Singapore’s millennials overly optimistic about their future, Tong's Portfolio: It's not difficult to invest successfully, Millennials do invest, even if they spend more money on discretionary items, Nearly a third of millennials in Asia expect to retire broke: survey