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What can millennials invest in with only S$5,000?

What can millennials invest in with only S$5,000? (PHOTO: Getty Creative)
Here's why millennials shouldn't shy away from investing. (PHOTO: Getty Creative) (Sushiman via Getty Images)

SINGAPORE — Most young adults have the misconception that only ‘rich’ or ‘older’ people can do investments. Yet, we see that most millennials are keen to grow their wealth for financial freedom in the future.

With most youths still studying and taking an allowance from their parents, it begs the question: What happens if I only have a small sum of money to invest? Will it still benefit me in the long run?

This is part of a series where Yahoo Finance Singapore will focus on different aspects of millennials and their finances. In this third part, we find out how and what youths should invest in if they only have $5,000 to spare.

Reasons for investing

First and foremost, it is important to know why you want to start investing the S$5,000. Financial experts that Yahoo Finance Singapore spoke to all agreed that investment is a process that takes time and one should not expect to see immediate results, no matter how much money is put in.

Given how it is increasingly easy for youths to kickstart their investing journey, one all the more needs to know exactly why they want to start investing, and work towards achieving these financial goals.

In fact, some financial experts also advised to first settle the basics, which include ‘boring’ things like setting aside an emergency buffer of up to six months’ worth of expenses.

“When jumping into the world of investing, factors like personal circumstances, saving for education, family needs, medical emergencies will affect your risk appetite, and how much capital you have to work with,” advised Salim Dhanani, CEO and co-founder BigPay, a financial mobile app.

“Regardless, it is important to be well informed and have the proper knowledge before jumping in. Do your research and find the best strategy that works for you, rather than purely investing in something recommended by friends or family,” he added.

22-year old Betty Chew, has been investing under OCBC’s Blue Chip Investment Plan (BCIP) since August 2020, putting in more than S$5,000 since then. Under this scheme, investors can buy shares in bulk of S$100 every month depending on how much they feel like buying.

“I decided to start investing because I have extra income from my part-time job, and wanted to see it grow instead of just letting it stay in the bank,” said Chew, an arts undergraduate from the National University of Singapore who is also working part-time in a cafe.

“This also gives me a sense of long-term financial security as compared to slogging out in a job for years without much financial return,” she added.

What to invest in?

Once you’ve decided on why you want to invest the $5,000, the next question would be what to invest in. With so many investment instruments available, it can be hard to navigate the market at times.

The golden rule for a S$5,000 investment? Stick to a low-cost portfolio, which is a tried and tested way of growing wealth above inflation return.

“Some may take the advice ‘invest only what you can lose’ too literally, and decide to invest in extremely high risk products, such as meme stocks or cryptocurrency with no consideration of losing all their capital,” said Gregory Van, CEO of Endowus, a Singapore-based financial technology company.

“It is important to note that high returns from taking up more risk may not apply to these speculative products,” he said.

Similarly, Gavin Chia, managing director of Futu Singapore, an online brokerage platform, advised: “Youths with limited capital may consider dipping their toes into the investment landscape through a mutual fund in smaller denominations which allows them to actively invest from as low as S$100.”

While youths have a longer time horizon in their investment journey and the luxury of time to wait for their investments to grow over the years, some youths are all about taking risks and venturing into more high-risk investments for quick cash.

For instance, fresh graduate Kevin Liang, 25, is one of those who believes that cryptocurrency is the way of the future. He shared that he has invested over S$5,000 in cryptocurrency stocks.

“While it is a high risk gamble, I believe that the payoff would be worth it as long as I know what I’m doing,” said Liang. “If my S$5,000 can grow to a five-digit sum within a matter of months, I don’t see why I should not be doing this,” he added.

Diversification is key

At the same time, financial experts warn that a diversified portfolio is crucial for sustainable financial goals, and that youths shouldn’t put all their eggs in one basket. This is because all investments come with risks, and it is important to evaluate one’s comfort levels before taking the necessary steps.

There are many options for young investors such as investing through online bionic financial advisors, which offers a globally diversified accumulation portfolio that starts from a S$100 lump sum or $50 per month.

Alternatively, mutual funds are a key stepping stone in achieving diversification while ensuring liquidity and safety. As an added layer, investing through funds is also beneficial as they are usually equipped with fund managers who have the expertise to be light-footed when navigating challenges posed by global events and the resulting market movements.