Stock investing is not for everybody. But with a little homework and planning it is possible to select a stock in a manner that reduces your risk and puts you in a position to benefit when its price rises.
There is a great deal of information available on publicly traded companies that can help you decide if its stock is worth buying. But it is a challenge to sift through all the data to arrive at the figures that tell you the real story about its performance and its prospects.
How many hours do you work in a day? Eight hours? Nine hours? More than that? We Singaporeans are normally tied to our jobs in the hopes we can earn some good income. But do you know there’s a way to work smart—that is, earn additional income with little to no effort? I am talking about passive income.
What is passive income?
There are two kinds of income: active and passive. Active income is the one you earn if you use resources such as time, talent, and even money. Your wages are a form of active income, and so are the commissions, bonuses, and allowances, to name a few.
On the other hand, passive income is how many get richer since it doesn’t require the same amount of effort and resources from you. In fact, many require only a minimum investment—that’s it! You just wait for your money to grow.
But where exactly can you get passive income?
1. Savings Account
Remember when finance experts tell you that it’s better to place your money in the bank than under your bed or anywhere else in the home? Well, here’s the reason why: it’s the quickest and easiest way to start earning passively. A typical savings account is interest bearing, the rate of which can differ among banks, so do your research well. But the more you put money in there, the bigger the interest income is.
Bank savings are also safe, investment wise, especially since these institutions are regulated and protected by insurance. However, it also offers the lowest return, which may not be enough to beat inflation. Needless to say, it’s a great start.
2. Real Estate
As a small country, Singapore has a very limited but highly valuable resource: land. So when something is scarce but the demand is high, you have a pretty good leverage. Properties can be either sold or rented.
Currently, the real estate market in the country is grim, but it’s also cyclical. In fact, you can use this to your advantage by buying a property when it’s still cheap. But remember, real estate is the hardest investment to liquidate. It can take months or even years before properties turn into cash unlike the other passive income options.
Meanwhile, if you don’t want to own a property, you can still invest through real estate investment trusts (REIT).
3. Stocks
Fancy owning some of the biggest companies in Singapore? Try your hand at investing in the stock market. Stocks come in two forms: common and preferred. Some of the stocks also give you dividends, which means you earn a profit from a sale or buy, plus get income from simply owning the stock.
So far, more than 600 companies are part of the Singapore Stock Exchange (SGX). As a start, place your money on blue chips, of which there are 30 of them. They are more expensive than the other stocks, but you’re assured of the company’s stability and reputation.
4. Mutual Funds
What if you don’t like to work personally with stock? Or perhaps you want to access other forms of investment but don’t know how? Then perhaps mutual fund is for you.
It works like a financial pool: people contribute to a certain fund, and an experienced fund manager with deep knowledge and understanding of markets determine where the money is going to be invested. Depending on the fund you’ve chosen, the manager can put it in many investment choices including real estate and bonds.
Hold Up!
Passive income is great for earning a side income, but it wouldn’t be if you allowed your other financial choices to ruin its good impact on you. A perfectly good example is unwise spending complemented by poor credit card features. A simple but powerful way to also protect passive income is to select the best credit card deals in Singapore.
(This article is brought to you by SingSaver.com.sg)
We frequently hear of the word “economics” in papers or conversations, but how useful or applicable is this course of study to the real world?
Understanding economics is in reality fundamental to understanding the price movements of every single good and service in our economy. It is the aggregation of the demand and supply forces. Indeed, when we see the airfare skyrockets after the end of school term, it is economics at work. Huge travel demand outweighing limited supply of passenger seats leads to propped up prices. As such, appreciating and capitalising on economic knowledge could end you up in deeper pockets.
While it may be too time consuming and superfluous to master all the economic theories, knowing a few essential concepts may come in handy in guiding our financial and behavioral decisions.
(Image credit: http://inflationdata.com)
Thanks to the prudent policies administered by MAS, Singapore enjoys a low inflation rate of 2.8% on average since 1962. However, a simple comparison between the interest rates offered by various banks indicates a mere 1.3% as the most competitive rate for 1-year fixed deposits.
What this means: The fund sitting in your bank is losing 1.5% of its value to be exchanged into goods and services annually. Given that you have $100 in your bank today, you can afford to buy 50 McChicken burgers. But one year down the road, you can only afford to purchase 49.25 of them.
Course of actions to be taken: Since the saving rate is not commensurate with the inflation rate, we may be better off investing in alternative assets that provide higher yields. However, if every rational and irrational soul is doing that, risks abound as illustrated below.
(Image credit: thenest.com)
Investing in stocks can yield 2 kinds of returns, namely dividend yield and capital gains yield. The former tends to be more predictable than the latter, especially if the company holds a long term track record of constant or growing dividend stream.
How to value stocks: Dividend yield is an objective measure in guiding investment decisions since they are realised returns and a better indicator of future returns. On the other hand, be extra cautious during stock encounters with historically impressive capital appreciation. Gullible investors may be tempted to buy these shares as they often fail to realise the high variability of capital gains yield could be complicated by the problem of information asymmetry where insiders possess and exploit private information to the disadvantage of outsiders.
Course of actions to be taken: Both insiders and outsiders have to keep abreast of news and developments in the macroeconomy and international economies as they affect stock returns systemically.
Specifically for outsiders, it is crucial to have a good grasp of the economic fundamentals (such as the consistency of dividend payouts and growth potential) of the company that helps to steer towards a proper valuation. A long term investment horizon is more favourable as it puts them on a more level ground with the insiders. If the outsiders were to invest in the short term, speculation is usually involved since by definition, the fact that they do not possess the superior private knowledge is prejudicial to them.
(Image credit: http://www.sydneyaccountants.com)
For more well-heeled investors looking to diversify their portfolio, real estate investment seems the way to go. Similarly, real estate assets provide 2 types of returns, specifically rental yield and capital gains yield. Best of all, a residential property provides its owner(s) a physical shelter to live in. Despite these benefits though, investors should be wary of overpaying for homes.
How to value property: Rental yield is an objective measure in guiding investment decisions since it measures the payback period of the hefty mortgage loan that homebuyers commit to. The URA Masterplan and a concise understanding of demographics are vital tools in predicting the capital gains yield.
Course of actions to be taken: Beware of one-off anomalous sale transactions that are not reflective of the true market forces. Stay out of homes in which the overinflated prices are not underpinned by strong economic fundamentals (such as location, amenities and size). Buy during a recessionary period instead of an inflationary period. Timing the market makes an enormous difference in your bank account.
(Image credit: http://www.personneltoday.com)
Investments aside, most of us contribute to the economy through our employment. But to maximise the return on our faculties and time, insights have to be drawn from the demand and supply forces.
Some simple mathematics to gauge how financially rewarding is a particular industry: If the staff turnover is high (due to long working hours, poor welfare, unchallenging job roles etc.), companies should offer higher wages to attract or retain workers.
However, this is not happening. Reason being a ready supply of potential (local and foreign) employees provides virtually no impetus for corporations to raise salaries. Does this plight sound familiar?
Course of actions to be taken: Instead of complaining about meagre wages, pursue a career in an alternative industry with market dynamics (i.e. less competition) working in your favour. Although it may seem counter-intuitive, you actually build greater wealth bucking the norm and doing what others don’t do. Better still, venture into a new industry and gain the first mover advantage.
Now you see, having a good understanding of economics is useful in our day-to-day living as it forms an integral basis for making financially sound decisions.
It is just like the eternal question every year again – what stocks to buy and what to ignore. The question is simple, but the answer is somewhat complex, as there isn’t any easy and straightforward way to respond to it. Investors can choose however different strategies. Like every year there are always certain companies that will grow no matter what the state of the economy does. These rather save investments are perhaps one of the best strategies to follow. But there are also sectors and industries that will be particularly flourishing in 2015.
Certain stocks have been climbing for four years in a row. Better judgement might suggest that there is an end to it. However, certain companies are simply not giving in. Furthermore, the December sell-off is the perfect opportunity for investors to enter the game. Companies like Apple (APPL) have been trending and created nothing but revenue for investors. The Apple stock has generated profits for five consecutive years and there isn’t any indication that 2015 will be different. The reputation of the company’s iOS operating system is better than ever and iPhones are leading the smartphone market. Apple appears to be a no-brainer.
The same holds for other IT stocks. The social media platform Facebook (FB) has enjoyed a 40% increase in the last year alone. Instagram, which is part of Facebook Inc., just reached 300 million active users and is said to have a vast potential for growth. With potential video ads launching on Instgram this year, the Facebook stock is set to climb further. Next to Apple and Facebook stands another giant, which has similar prospects – Google (GOOGL). The market share of the company is beyond belief and easily surpasses the ones of the competitors. No matter whether mobile phone market, online search or services and applications – the sails are set into one direction. Investing in any of these IT brands could be a risky undertaking considering their extremely long runs up the market ladder, but they are clearly not finished yet. Therefore, any of them should be a save investment for 2015.
However, these are not the only stocks, which are predicted to go up. Many other information technology stocks are said to behave similarly. Even the famous heavyweight Goldman says that investment in this sector will bring favourable profits. The growth predictions for this particular industry are set around 9%. This will ensure decent returns for shareholders.
Another investment tip given by many important financial institutes are the big global stock market indices. At least within the first half of 2015 the major indices are expected to grow. Especially the S&P 500, the American stock market index, is according to the forecast of the financial institute Goldman Sachs continuing to increase in value. Since the crash in 2009, the index has doubled in points and even climbed over the value it has had before the crash. Analysts calculate with at least another 5% increase in the first few months of 2015. Also the TOPIX, the Tokyo Stock Price Index, is on an upward spiral and estimated to be even steeper than the American index. Although the Japanese economy has suffered various setbacks in the last years, the predictions for the second most important Japanese stock market index are positive.
Investments not to make are material stocks. As the Chinese economy is experiencing stagnation, the demand for raw materials is going back. The stocks have increased in the last years, however the prediction for 2015 is dim. Most likely the stocks fall deep before they will increase and stabilise again. One should wait until they fall though. The moment when they will fall is unclear, but the fall itself is almost certain. Once the material stocks have considerably decreased, one should consider investing again.
No matter whether coal, oil or base metal – the price is weak. The oil price hit a five-year low and the coal price even went below its 10-year average. The wheels of the commodity super-cycle seem to be stuck in the sand. With oil and coal having increased up to a ten-fold in the last 15 years, the growth has been cut. China and other emerging nations had been responsible for a massive demand of materials. However, slow economies and decreased demand, especially in China, are now creating the halt.
Although major economies, such as Russia and China, are slowing down for different reasons, the Asian market is expected to grow in 2015. The emerging markets of China and India as well as South Korea and Indonesia are not to be underestimated in the next twelve months. Reforms and different policy chances have reduced bureaucracy and enable so economic growth. Furthermore, through policy changes unproductive and ineffective industries and sectors will be more exposed to the order and self-regulation of the markets. One of the best performers of the Asian markets in 2014 was the Deutsche X-Trackers Harvest CSI 300 China (ASHR), which increased by 47%. The steep trend increased especially in the last two months of the year and is therefore a top contender to watch and invest in for the first few months of the New Year.
While still in trouble is 2013, India and Indonesia have stabilised their currencies in 2014, while Korea, Taiwan and Singapore had suffered compared to the US dollar. This however has helped India and Indonesia to push reforms and growth their own markets. The Indonesian iShares MSCI Indonesia ETF (EIDO) grew by over 21% and the Wisdom Tree India Earnings Fund (EPI) could improve by more than 27%. Both of them can be interesting for investors in the next six months. Although both experience occasional setbacks, one could consider them as a long-term investment, as their potential growth could be up to 20% for the next two years.
In general 2015 isn’t looking bad at all. The US market as well as different Asian markets, such as the Indian and Indonesian markets, are expected to grow further, although some have already been growing too long in the opinion of some analysts. Investing in information technology stocks will be the safest bet though.
