4 Most Important Questions Before Making A Big Investment

Start your journey to financial success by going out of your comfort zone and exploring your investment options while making informed decisions.

15:02 01 December 2023

Financial wellness remains a lofty goal for the ordinary Singaporean. However, saving can only take you so far. Sometimes you will still find yourself looking for a money lender in Singapore. Relying solely on your salary will not make your income grow significantly in a short amount of time.

This makes investing attractive. It presents the promise of having your money work for you and the fulfillment of the dream of growing your wealth. At the same time, investments aren’t something to be taken lightly. It’s not as easy as putting one's money into financial assets or instruments to generate a return over time.

The reality is that there are certain concerns that one has to think about before investing. Here are a few things you need to consider:

How Much Risk Can You Handle?

Unlike having a full-time or part-time job, investing does not guarantee returns. By their very nature, most investment products are high-risk. Purchasing or acquiring an asset as an investment means your goal is to generate income and you are anticipating that the value of the asset will increase or appreciate.

Most of the time, an investment is bought because it promises huge returns. However, reality sometimes doesn’t match expectations, especially because the value of the asset you plan to purchase could fluctuate based on market conditions.

So before buying for investment, you should identify the risks present in the investment product you are acquiring. These include interest rates, foreign currency exchange rates, commodity and stock prices and even, global events and their effect on the economy, just to name a few.

Once you know the risk factors, you can assess how much risk you can tolerate. Based on your age, current income, financial goals, portfolio size, personal timeline and comfort level, can you manage the volatility of your investment? Keep in mind that the constant pressure of maintaining an asset with an ever-changing market price and making sure it remains an asset and not a liability can take a mental toll on you.

What's Your Timeframe?

You have to decide on a time frame when setting out to buy an investment. This is the period on which you intend to hold an investment before it becomes profitable. Factors that will affect this are financial goals, risk tolerance, and liquidity needs. Generally, if you can afford to keep the investment for a longer time frame, there is a bigger potential for higher returns and more significant compounding.

If you will be needing the money soon, try to explore lower-risk options. You might want to purchase government-backed Singapore Savings Bonds (SSBs), fixed deposits in bank savings accounts, and stocks of stable companies listed on the Singapore Exchange.

What Investment Options Suit You?

With the investment product risk factors, your risk appetite and risk tolerance, and investment time frame in mind, you can start to have a clear picture of what investment options suit you.

Look for online tools that can help you have an unbiased evaluation of the options you are considering. Set aside time to review and adjust your investment portfolio to ensure it remains in line with your financial objectives and risk tolerance.

Most investors go for SSBs, blue-chip stocks and REITs. However, don’t go for those just because they’re what most people go for. Remember, people have different financial situations and have different risk appetites. What worked for a friend or a colleague might not work for you, so it’s better to seek the advice of experts. Look for a certified financial advisor so you can discuss your financial situation, objectives and your financial behavior.

Have You Done Your Homework?

Explore investment options and research on the basic features of these products. Outline and understand the risks as well as potential returns. Check historical performance while taking into consideration current global economic and financial trends. Do not put your eggs in one basket. Spread investments across various asset types to mitigate risk.

In fact, the Monetary Authority of Singapore (MAS) offers educational resources and tools you can access for free so you can understand financial products and investment options. You can also use information provided by the Central Provident Fund Board for investment schemes they offer and retirement planning. Another institution you can turn to is the Association of Banks in Singapore (ABS) or the Institute for Financial Literacy (IFL). They offer free workshops and advice. Do not be afraid to ask and take the time to learn more before purchasing an investment product.

Conclusion

Research and learn about available investment options. Familiarize with the features of each investment product and outline the risks and returns. Identify which products align with your investment timeframe and financial goals. Although investing is risky, you can reduce the risks by staying informed about market trends and global events and avoiding impulsive decisions.

And if you are a first-time investor, set some space for error and losses. You will have to be comfortable with these things as early as now. Consider this as training that will increase your risk tolerance and make you more capable of addressing uncertainty.