Getting Started with Stocks in Singapore (2017 Update)

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Why would you want to invest your money in the Singaporean stock market? Is it so that you can wisely use the money you’ve been saving up over the years? Or because you want to know your money is working harder than it will if it is just sitting around in a bank account?

 

Whatever the reasons, let’s start off by explaining why you’re better off with stocks rather than the other types of investments that you can get started with.

 

Why Stocks?

Why should you invest in stocks over the other major asset classes such as government bonds, or property? Each of those are highly traded among their respective exchanges, and increase in value faster than the rate of inflation.

 

In fact, in Singapore, many people prefer to invest in property because they see the fruits that have been born for their parents, and collecting monthly passive income from rent seems like a brilliant dream to have for any person when they look towards retirement.

 

However there are many disadvantages to taking property over stocks. Studies show that the returns on properties outperform those of the stock market. The annualized returns from properties over the past 20 years has lingered around 4-5%. And to add to that the liquidity ratio of properties is extremely low compare to that of stock investing. Don’t forget that most property is bought on a mortgage and has maintenance fees. Thus further reduces the amount of money that you’re getting from it. If things turn sour down the road, the bank may repossess the property and you lose everything that you have put into it.

Property needs quite a lot of initial capital to invest into it, compared to stock markets, which an investment as small as a few hundred dollars can reap huge rewards down the road.

 

How Much Money Can You Make?

Stock usually achieves interest rates of around 10-15 percent per annum, and you will be very lucky to get anything higher than that.

 

There is no limit to how much money you can make in stocks. But there is a limit to how much you can lose. That is the amount you initially invest. For example, if you put in $1,000, then if worst comes to worst and the stock prices drop to zero, your capital value becomes zero. At the end of the day, all you’ve lost is your capital, $1,000.

 

In stocks, total returns which takes into account both capital gain and dividend received.

 

Stock returns = Capital + Dividend

 

And one last thing, when looking at returns, you should avoid looking at individual stocks and their rising and falling each day, and rather look at least a 5 year period and the total of your entire portfolio.

 

Requirements to buy stocks

The first requirement is that you must be at least 18 (or with some brokers 21). Then you will need to set up to  accounts: a CDP (or Central deposit Account) which records all your share transactions you will record and deposit your shares, and a brokerage account, which is the platform that you use to buy and sell the shares.

 

Buying the stocks

When you’ve opened the accounts, you can either buy stocks using the online platform or a use a broker who will execute trade on your behalf and will get a commission. Most investors prefer to trade themselves.

 

If you’re not a financial professional and don’t want to delve deep into learning about finance, then you should go for a broker.

 

Brokerage Fee                                                                                

The actual fee varies depending on the brokerage firm that you will choose, but there are a few things which you should watch out for.

 

  1. The commission percent per trade value
  2. The minimum commission, which on average per trade is around $18-25.
  3. SGX fees (clearing fees added to the access fee) of ~0.04%

 

Types of Trading Accounts:

  1. Contra (Margin)

A contra trading account is an account use to reduce the value of a related account. For instance, having a credit account whereas the normal account is debit. It is refer to by most as a cash trading account.

Unless it is mention that the account requires cash upfront, then the payment is made three days after the stocks are bought. Within which you can sell them. The same time period applies for when you are selling the shares.

 

Making payments on Contra accounts

You will make your payments either through the interbank GIRO or EPS (electronic payment of shares), or upfront cash

With Interbank GIRO, you will choose a bank to make payments to. The payment will be done automatically the day after the due date. The same schedule applies when you are selling.

As for EPS, you’ll still need to select a designated bank account, but instead of automatic deduction like GIRO, you’ll need to make the payment yourself using an ATM or online.

For cash upfront, it’s the most straightforward method of buying shares. You will need to have money in your bank account in order to buy shares. The payment will be done at the same time the stocks are bought.

An example of an upfront cash system is SCB.

 

After Buying the Shares

This really depends on your broker. But in most cases you will receive an email or a text message. It will inform you that your buy and sell orders are successful.

The CDP will then send you a statement of account showing how many shares are in your name.

Do note that the CDP statements are very important. Why? This is because they can be use as references if there is ever a conflict between you and your broker. Especially if it is on how many shares are in your CDP statement.

 

This is a guide to start yourself with shares in Singapore. However, if you struggle to understand the shares and how they work, do not worry! You can always hire a professional to oversee all your investments. This will provide you with a peace of mind that your money is in good hands.

So now that you have information on how to start with shares in Singapore, you have a good foundation to go out there and start making money!


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