Too ‘Broke’ To Invest: No Longer an Excuse

There is a common misconception that you need a large sum of capital to begin investing.

That may have been true a decade ago.

But with the advent of new technologies such as fractional share trading, robo-investments and bite-sized investment products, that myth has been well and truly busted.

Thanks to these innovations, you can start investing your spare change into high-quality investment funds or blue-chip companies such as Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT).

However, owning individual stocks will require you to spend time researching and keeping up to date with the developments surrounding the company.

Spending time researching stocks might not be suitable for everyone.

For such individuals, investing in exchange traded funds (ETFs) opens up a viable option for them to achieve diversification and peace of mind in their investment portfolio.

ETFs in a nutshell

ETFs are basically a collection of investments that can range from stocks and bonds to indexes and other securities.

An example is the SPDR Straits Times Index ETF (SGX: ES3).

This ETF tracks the Straits Times Index (SGX: ^STI), which contains the 30 largest companies listed on the Singapore Exchange (SGX: S68).

By buying a single unit of this ETF, you effectively own a slice of all 30 companies, which include familiar names such as DBS Group (SGX: D05), Singapore Airlines Limited (SGX: C6L) and Keppel Corporation Limited (SGX: BN4).

There are other reasons why ETFs are attractive to new investors.

Many ETFs charge relatively low fees and enjoy higher liquidity in the market as compared to other types of investment funds.

ETFs are also very affordable.

One unit of the SPDR Straits Times Index ETF trades at close to S$3.26, and with a minimum lot size of 10, you only need S$32.60 to start investing.

The lot size refers to the minimum number of shares investors have to purchase.

Furthering the accessibility of ETFs

ETFs exploded in popularity in 2021.

According to SGX, the combined assets under management (AUM) of SGX-listed ETFs surged more than 47% in 2021.

Globally, ETFs and exchange-traded products (ETPs) saw a record net inflow of US$1.14 trillion in investments.

Another trend in the last couple of years is the rise of dollar cost averaging (DCA).

DCA is an investment strategy where you invest a fixed amount of money on a regular basis.

This approach helps investors to avoid the emotional hurdle of investing amid volatile share prices and establishes a good practice for building wealth.

In response to these trends, SGX has announced that starting 17 January 2022, the minimum lot size for all SGX-listed ETFs will be reduced to one unit.

The move will enhance trade size flexibility, helping investors who DCA into ETFs.

To illustrate, let’s use the SPDR Straits Times Index ETF again, assuming the same share price of S$3.26.

Instead of having to buy in lots of 10, where you need to invest in multiples of $32.60, the new update by SGX means that you can now invest in multiples of just S$3.26, allowing you to spread out your funds over a wider range of investment choices.

Your buffet of options

As of 30 November 2021, there were 35 SGX-listed ETFs that offer a diverse range of options to invest in.

Apart from the local index, you may also check out ETFs which track overseas indexes.

For example, the SPDR S&P500 ETF Trust (SGX: S27) contains 500 large, US-listed companies

The more adventurous may opt for exposure to developing countries such as Vietnam or Indonesia.

Another popular asset class is real estate.

The SGX offers five REIT ETFs, each of which allows investors to own a collection of REITs.

REITs are a financial vehicle that host a portfolio of investment properties, which you can own a slice of.

There are also ETFs such as the Lion-OCBC Securities Hang Seng TECH ETF (SGX: HSS) that allow you to invest in a specific sector of your choice.

Get Smart: Increase in flexibility

SGX’s latest announcement will increase the flexibility of ETF investing.

As such, you now have more control over how you deploy your capital, especially for those who prefer to invest in smaller amounts on a regular basis.

Now, Investing can cost less than a meal at the coffee shop, so being “too broke to invest” is no longer a good excuse.

The move also enhances financial inclusion and accessibility for retail investors.

The comprehensive offering of ETFs means that you can mix and match them, creating a diversified investment portfolio that suits your investing preferences.

This could be the fastest way to jump from a “newbie” investor to a seasoned pro. Our beginner’s guide shows everything you need to know to buy your first stock and beyond. Click here to download it for free today.

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Disclosure: Herman Ng owns shares of Apple and Microsoft.

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