The step-by-step guide to growing your money


To the average person, investing is either just for screaming stock brokers – think “The Wolf of Wall Street”, or it’s something we always say we’ll get down to doing, but never do

In reality, investing is a lot less exciting than in the movies. Also, you don’t need millions of dollars and a stock broker, and you can start with as little as SGD 100.

Here’s how it works:

First off, investing is not trading. Forget what you see in the movies.

Trading is when you try to buy low and sell high, such as with stocks or foreign currencies. It’s exciting because it can result in big gains and losses, within a very short time.

Investing uses the same assets that traders use, such as stocks and bonds – but investors aim to steadily grow their wealth over time to meet long-term financial plans.

Investing won’t make you a millionaire overnight, but it can make sure you retire comfortably 40 years from now.

While it’s much slower than trading, investing is also safer. Traders really can go broke in the span of hours. But a cautious investor, with a well-diversified portfolio, is protected from this sort of sudden crash.

But why do you need to invest anyway? Why not just hoard your money in a bank?

A long time ago, you could hoard your money in a bank and still retire well.

Today, the typical interest rate for a savings account starts at just 0.05 per cent. You can make it higher than that, with bonus tiered accounts like the DBS Multiplier.

But unless you have a huge sum of money (we’re talking five digits a month), you’re probably not getting an interest rate much higher than one per cent; even if you turn to fixed deposits.

The problem is, Singapore’s cost of living keeps going up. The inflation rate in Singapore is around three per cent per annum, so your savings interest rate just can’t keep up.

That’s where investing comes in. The aim of investing is to grow your wealth, at a rate that exceeds inflation.

Given our three per cent inflation rate, you should aim for investment returns of around four to five per cent. This will ensure you have enough money to retire on.

But how do you invest?

To start investing, you need to go through five steps:

  • Set your financial goals and investment horizon

  • Determine your risk profile and matching assets

  • Understand the common types of investments

  • Determine if your portfolio meets the financial goals

  • Make constant tweaks to your portfolio

1. Set your financial goals and investment horizon

Investing without goals is like trying to play football without goalposts, it’s utterly meaningless.

Your investment goal must also be quantifiable. “Make more money” is not a quantifiable goal. “Make SGD 250,000 by the time I’m 65” is.

Now the best way to work out these goals is to talk to a financial advisor. You can do this for free and with no strings attached at the NAV Hub or use an investment calculator.

But we’ll show you a simple way to get started here:

First, work out your desired Income Replacement Rate (IRR). This is the percentage of your current income that you want to have, upon retirement. A comfortable retirement usually requires an IRR of 60 to 70 per cent (although those who live simply may aim for just 50 per cent, and some ambitious people may even aim for 110 per cent).

For example, say you earn SGD 3,500 per month. To get an IRR of 70 per cent, you need to make SGD 2,450 per month after retirement.

Assuming you retire at age 65, and plan to live till 90, you will need roughly SGD 2,450 per month for 25 years. Now you know you’re looking at a minimum of SGD 735,000, to retire comfortably.

Once you’ve worked out this approximate amount, you’ll have a sense of which investment products or assets are right for you.

2. Determine your risk profile and matching assets

Speak to a financial advisor to get a risk profile assessment. This determines the overall level of risk you can afford to take.

Some banks filter products based on risk levels, so you can easily filter out the investments that are suited to you.

Once that’s done, you can move on to…

3. Understand the common types of investments

There is no end to the number of things you can invest in. However, here are the basics that you need to understand:


These represent shares (ownership) in a company. Some stocks pay regular dividends, usually every six months or every year, but many stocks do not.

Stocks have a higher risk than bond, but tend to deliver better returns over long periods (e.g. 15 years).


Also referred to as fixed income securities. These are debt instruments, and when you buy a bond you are lending money to the company or government that issues it.

Unless you’re an accredited investor, you usually have access to just vanilla bonds. Here’s how it works:

Bonds have a par value (the borrowed amount), a coupon rate (interest rate), and a maturity date.

Say you buy a bond with a par value of SGD 10,000, for which you pay SGD 10,000. The coupon rate (interest rate) is four per cent, and the bond matures in 10 years.

This means that the bond will pay out SGD 400 every year (four per cent of SGD 10,000), until the maturity date on the 10th year. At that point, you will get back the par value (SGD 10,000), and the bond is ended.

Bonds are considered safer than stocks. This is because stocks may not always pay dividends, but bond coupons must be paid (it’s a form of debt).

That said, bonds are not risk free. There is always the risk that the company or government issuing the bond will be unable to pay it back. Also, note that bonds tend to underperform stocks in the long run. That’s because the returns from bonds are much lower, and very safe bonds – such as Singapore government bonds – may deliver returns lower than inflation.

(The bonds are so safe, the borrower doesn’t need to pay a high interest rate to attract lenders).

Unit Trust Funds:

Also called UTs or mutual funds. This is how most Singaporeans invest. Rather than buy specific stocks or bonds yourself, you can buy “units” in a unit trust fund.

The fund pools the money of many investors, and places it under the care of a full-time financial professional, called a fund manager. The fund manager makes all the important buying and selling decisions, to earn a return for the investors.

A fund’s performance is usually measured by a benchmark index. For example, say the benchmark index is the Straits Times Index (STI). If the STI delivers returns of 3.76 per cent, a unit trust that delivers a return of 3.86 per cent has outperformed the market (good performance). If the returns are below the benchmark index, then it has under-performed (write an angry email to the fund manager).

Fund performance should be read over a 10 to 15-year period, not just a single year.

Real Estate Investment Trusts (REITs):

These funds pool investors money to buy property, such as hotels, malls, offices, and others. The rental income collected from these properties are distributed between investors, in the form of dividends.

Singapore based REITs are called S-REITs. By Singapore law, S-REITs must pay out 90 per cent of their profits as dividends. This makes them very attractive to investors.

Exchange Traded Funds (ETFs):

There are partial replication ETFs, synthetic ETFs, full rep…you know what, forget it. To stop your head from spinning, here’s all you need to know:

An ETF copies a particular index and delivers returns that mimic it. Say an ETF copies the STI, and the STI delivers returns of 3.76 per cent. The ETF will deliver returns really close to that, such as maybe 3.75 per cent.

One advantage of ETFs is their low management fee – there’s no fund manager to pay. The ETF is run by a computer that just mimics the index. A low management fee ultimately means higher returns for you.

These are just a few of the assets available. Speak to a financial adviser to work out the correct mix of assets for you.

In general, avoid putting all your investments in one type of asset; don’t buy nothing but REITs, for example, or have nothing but bonds.

As a loose rule of thumb, young investors should have a mix of around:

  • 70 to 80 per cent equities / unit trusts in their portfolio

  • 10 to 20 per cent in fixed income securities

  • 0 to 10 per cent in cash (this might just be money kept in a savings account, or in Singapore Savings Bonds)

Note that some financial advisers might advise you to have 100 per cent equities, if you are 25 years old or younger. That’s fine too, but the equities have to be diversified (they can’t all be in the same type of companies).

4. Determine if your portfolio meets your financial goals

Remember step 1, when you worked out how much you need?

The next step is to project how much your portfolio can earn you, over the course of your investment horizon (the amount of time you’re invested). For simplicity’s sake, let’s say you buy a bunch of unit trusts and an ETF, and have a portfolio with returns of around five per cent per annum.

Let’s assume you set aside SGD 1,000 a month for that portfolio. Compounding at five per cent, over the next 30 years, you would get approximately SGD 834,660.

Back in point 1, we determined that you would need about SGD 735,000 to meet your goal. As such, you’re investing the right amount to comfortably meet the target.

If your projected sum would fall under the target, then you either need to lower your expected IRR, or set aside more for investment.

5. Make constant tweaks to your portfolio

Putting your portfolio together isn’t a one-time process. You also need to tweak the portfolio often. For example, if your equities appreciate and make up a larger part of your portfolio than expected, you’ll have to sell them to “trim them down”. This can be counter-intuitive (you’re selling an asset that’s performing well), but it ensures you maintain a balanced, diverse mix of assets.

You’ll also need to change the asset mix as you get older. As you get closer to retirement, for instance, you’ll need to replace more equities with bonds. An investor three years away from retirement, for instance, may have a mix such as:

  • 10 per cent equities

  • 60 per cent fixed income

  • 30 per cent cash

This is because, as we get older, we need to shift our emphasis from growing wealth to protecting it.

This should give you the basic picture of how things work; but please speak to a professional before you invest.

Please don’t read this and immediately start buying stocks or bonds without consultation.

A financial adviser is needed to tailor a portfolio to your specific situation – and don’t forget that your portfolio needs to be tweaked regularly.

Your role is to have a clear idea your goals, and to assess whether your portfolio (and your adviser) are on track to meet them.

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