What On Earth Are Investment Bonds?

DEFINITION

A bond is a fixed income investment in which an issuer or investor loans money to an entity. Entities such as companies or governments borrow the funds for a definite period of time, involving an interest rate. These bonds are used by said entities to raise money or finance a variety of projects.

PREPARATION

If you are comfortable with getting less money in return, then you will benefit from investing on bonds. You may think that bonds are less risky than others. However, this statement is not entirely true. Bonds are usually less risky than stocks when you are comparing products from the same issuing company.

Most investment bonds are whole of life. Thus, there is no minimum term. At surrender or during the occurence of death, a lump sum of money will be paid out. The amount of money depends on the bond’s terms and conditions as well as the investment’s performance.

ACQUISITION

a. Bond ETF

The ABF Singapore Bond Fund is listed on the Singapore Exchange and managed by Nikko Asset Management. Investors can easily sell or buy holdings in the bond fund for as low as S$100. This fund buys the bond issuance of quasi-government entities such as Temasek, LTA, and HDB. What’s the main catch? There is no maturity period for this. The fund will use the proceeds to buy other bonds. You will receive your principal by selling your holdings in the open market.

b. Singapore Government Securities (SGS)

The Singapore Government issues bonds under SGS. It offers treasury-bills, SGS Bonds, and Singapore Savings Bonds. These are typically risk-free and are applied through the three local banks.

c. Investment Grade Bonds

Whether you believe it or not, bonds come with bond credit ratings. These ratings measure credit worthiness. An investment grade bond (i.e., AAA, AA+, or AA) means that the bond issuer is unlikely to default.

Image Credits: pixabay.com

These are just some things that you must consider before investing on bonds. Best of luck on your financial journey!

Sources: 1, 2, & 3

Read More...

Budgeting 101: Taking Over Your Financial Life

Have you created a budget in the past? Were you able to firmly follow through? What were the obstacles that you have experienced?

It comes as no surprise that budgeting is no easy feat! It is a strategic task that encourages cutting down of your expenses. Furthermore, you must find a way to still enjoy the money you earn. Striking a balance between your needs and wants can be stressful for some.

So, where must you start?

Start accept your accountability over the choices you make. Every action has an equal reaction towards your wealth. Regularly subscribing to designer shoes can take a toll on your income. While, decreasing your trips to the coffee shop can help save cash. With this form of thinking, you will practice financial self-awareness.

Financial self-awareness comes the observation of thoughts, feelings, and actions surrounding money. For instance, you will be more aware of temptations such as the “cheap” 24-hour marketplaces.

TYPES OF BUDGETING

A. Traditional

A Traditional Budget maps out a plan for how you expect to spend your money. It indicates the amount of money you allot during a specific period of time for a specific financial obligation. How much will you set aside for rent, entertainment, or insurance?

B. 50/20/30 Rule

The 50/20/30 rule is a proportional guideline that helps you establish good habits through the alignment of saving goals. 50% of your income shall go to essentials, 20% of your income shall go to savings, and 30% of your income will be spent on the unnecessary personal expenses.

C. Envelope Method

Envelope method is a simple way introduce you to budgeting. Begin by track the last month’s spending. Highlight your fixed and variable expenses. Then, devise a plan that will consist of different categories. Segregate each category into various envelopes. You must strictly follow through the allocation of each envelope. Do not get money elsewhere.

D. Event-based Budgeting

The last type of budgeting revolves the life events such as weddings, funerals, vacations, and special holidays. Tweak your budget in accordance to these events.

Image Credits: pixabay.com

Budgeting lies at the foundation of each and every financial plan. It is about understanding how much money you have, where it goes, and how to allocate those funds. Best of luck! 🙂

Sources: 1 &2

Read More...

Choosing Trading Indices or Individual Stocks and Shares – Which Is Best Suited to You?

Indices versus stocks and shares is a tricky question. You can trade both, but most people prefer to stick to one or the other. Let’s take a look at both and discuss the pros and cons.

What are Indices?

Indices are compilations of stocks and shares. The FTSE 100 is an index of the top 100 companies listed on the London Stock Exchange. There are many others, including the S&P 500 Index, the Hang Seng Index, the Dow Jones Industrial Average, the NASDAQ 100 Index, and so on.

An indices performance is measured in points. For example, if the FTSE 100 goes up by 56 points, the overall value of the companies listed in the index has risen in value. When the value of stocks and shares fall, the index loses points.

When you purchase shares in the FTSE 100, you are essentially buying shares in ALL the companies listed in that index. The value of an index is derived from the average value of each company or entity in the index. If you elect to purchase shares in a single company, the value of your investment goes up or down according to the performance of that company.

The Benefits of Trading Indices

Trading in indices is more cost-effective than trading in individual shares. If you buy shares in the FTSE 100, you’re effectively buying shares in each of the listed companies. To buy individual shares in each company would be very expensive.

Trading indices can offer a far greater degree of diversity. You can spread your money across multiple indices, which also spreads the risk. If you place all your eggs in one basket by buying shares in a limited number of companies, the risk is far greater.

Risk Management

Stocks often rise and fall based on news reports, politics, financial statements, etc. If a company’s shares take a nosedive because they were caught hiding toxic assets in the Cayman Islands, it will have a dramatic effect on the company’s share value, and not for the better!

When you trade on indices, you are betting on whether the value of the indices will rise or fall in the same way forex traders bet on whether a currency pair will rise or fall in value. If you sell an index at a higher price than you bought it, you make a profit and vice versa. When the price of an index rises, more investors are buying than selling.

Whereas stock prices in individual companies reflect the performance of that company, indices reflect wider market sentiments. For example, the day after Theresa May called a snap election, the FTSE 100 had fallen by 180 points, which saw £45.7 billion wiped off valuations.

In most cases, trading on indices is less risky than investing in individual stocks and shares, but there are always exceptions to the rule. For example, the Dow Jones fell by 22.6% on Black Monday in 1987, so never rest on your laurels.

Read More...

Money Lies That You Probably Believe

Truly, these lies may be holding you back from financial success.

I DO NOT NEED TO SAVE A LOT FOR RETIREMENT

In is evident that many senior citizens work beyond their 70’s. To survive their daily expenses, some Singaporean seniors acquire odd jobs. With this environment, you probably think that you can continue working beyond your retirement years. However, humans are subject to their declining health over time.

A senior adviser at a wealth management firm, Mr. Ken Moraif, once elaborated how dangerous it is to work for a lifetime. “With no savings, if our health fails, we not only have lost our income but we now also have a large expense.” The combination of these two factors can trap you into a bad financial situation.

LOW-INTEREST SAVINGS ACCOUNT IS AN INVESTMENT

When you think of savings, what is the first thing that pops into your mind? Is it a savings account or an emergency fund? Well, thinking that your stored cash is an investment is somewhat wrong.

Having excess cash to fulfill your emergency and living expenses is great. But, do not rely too much on your low-interest savings account. The value of your money kept there may decrese over time due to inflation. What shall you do instead? For starters, you may put a decent amount of your money into basic investment vehicles such as a mutual fund. Do your research!

I WILL BE EARNING MORE MONEY IN THE FUTURE

Do you plan for your future operating under a faulty assumption that your gross income will increase? I mean, it is basic Maths right? You get promoted as time passes. For some, believing these things can actually turn into a reality. How about others who stay in a position for a decade or so?

Believing that you will earn more money in the future without actual basis can lead to major purchases that you cannot afford. Can you really buy another HDB flat or a new car?

Image Credits: pixabay.com

We all want to assume that we will compensated as time goes on, but there are no guarantees! Your company may start laying off workers or even dissolve. Moreover, a critical illness may halt your career. To achieve financial freedom, it is better to stay within your means. This way, you can treat any pay increases as bonuses.

FRUGALITY IS ENOUGH TO SAVE YOU IN THE FUTURE

I considered myself as a frugal being once. Then, certain life problems came my way. My mother had an operation, which occurred simultaneously with our home renovation. My savings account became significantly slimmer afterwards. I realized that frugality alone cannot make a positive difference. I need to find a way to expand my opportunities to continue growing my wealth.

Directing all your energy towards ingenious ways to limit your expenses can limit your life. Instead, consider frugality (i.e., a means to eliminate waste) as a long-term financial goal. For instance, you may lessen your trips to Starbucks due to the free coffee provided by your workplace.

I AM NOT WEALTHY ENOUGH TO INVEST

It is common to perceive yourself as a person without the ability to invest. If you have money to satisfy your regular thirst for Starbucks then, you have enough money to invest. If you spend your money on designer watches then, you have enough money to invest. Do not get me started with spending your money on trendy Netflix or hefty shoes!

Image Credits: pixabay.com

The key to financial freedom is not how you perceive the prowess of your money, but how you spend it. You will find that you have sufficient funds to invest when you prioritize your long-term goals over buying unnecessary material goods.

Sources: 1 & 2

Read More...

Financial Trading: Why is Known Risk the Best Risk?

No, this is not some sort of elaborate psychological test or a thought exercise. It a genuine question, do you know why known risk is the best type of risk?

Well, let’s use a hypothetical scenario: you are sitting on a park bench on a cool spring day, what would be more dangerous – a brick falling from an adjacent building that you are completely unaware of or a brick headed in your direction, that you have seen with enough time to avoid.

A risk that is known, is preferable than a risk that is unknown – very simply…because you can avoid risk you know about. This is the genius behind easyMarkets latest product – easyTrade – but it’s not the only feature this innovative and surprisingly smart way to trade offers.

Known Risk, Fewer Problems

Because of the underlying financial product easyTrade is based on – vanilla options – it also allows clients to trade without margin requirements. Margin, if you are unfamiliar is the minimum amount in a trader’s account necessary to trade with leverage – if the account goes below that required amount, trades start closing until it is reached again. This could include profitable trades. Another problem “margin stop out” could create when trading is your position (trades) closing and then shortly after the price recovering.

Another benefit which is similar to the advantage no margin trading offers, stop out is also not needed due to the known maximum risk. Stop out is a risk management tool that allows you to set a level at which your trade will close if you are incurring losses. This carries the same danger as margin stop out though – a change in the price’s direction could potentially close your trade. This isn’t a problem if the rate (price) continues going against your trade, but it can be very damaging if the price recovers. Again, this is due to having known risk and no need for risk management tools you would use if your risk was unknown.

Quickly React

Many traders seek robust ways to trade, that give them immeasurable options and tools. Although these are undeniably robust, they can be a hinderance when you want to react quickly. If you are a trader you know that those slight few seconds are important to make or break a trade. If you aren’t a trader – then let me inform you – markets never sleep, they are in constant flux and a few minutes can make a significant difference to your profit or worse your loss.

Although easyTrade can be used in a sophisticated trading system – as hedging against other trades for example – it is also exceptionally engineered for simplicity. This simplicity can translate into speed when needed. In just four steps – choose what you would like to trade, set the maximum risk you are comfortable with, decide the trade time and then choose if the price will move up or down.

Innovation, Support, Experience

easyMarkets has been in business since 2001. It was one of the very first brokers to offer negative balance protection and free guaranteed stop loss (and still offers it today along with many more tools and conditions), to help customers better manage their risk. A long time has passed since then and easyMarkets has managed to remain relevant through its constant innovation and true dedication to its clients.

Its latest innovation easyTrade which offers no margin requirements, high leverage (in a way that is still regulator compliant) and known risk is yet another great and beneficial tool offered to easyMarkets clients.

Read More...