Insights

Investment Planning: Why you should invest and how to get started

10 January 2022 | 3-mins read

Picture this.

You’re giving your all at work: bringing home a hard-earned salary and dutifully setting aside some in your bank. A holiday would be nice, but you feel a guilty pang knowing that you should be saving towards your financial goals, like retirement. You settle for coffee, but as you’re about to pay, you realise that the cost of latte has gone up by almost a dollar. Stopping for a quick grocery run, the bill comes up to over $100. You double check the receipt to see if you’ve been overcharged, and then you remember the coffee — it all adds up.

If any of this feels painfully familiar, take this as the sign you’ve been waiting for. You need a new way to grow your money, but are too afraid to take the leap. The whisperings probably sound familiar, either from that financially savvy friend, or well-meaning aunty, or YouTube ads that you try to skip: Invest.

Let’s rethink the scenario above and get into the details of why you should start planning about investments.

Give your purchasing power a push

With the current economic climate, inflation has been rising at a hair-raising rate. Singapore’s core inflation hit 4.4 per cent in June 2022, surpassing the 4.0 per cent handle since 2008¹. Basically, what this means is that you are getting less bang for your buck, and unless your salary is increasing proportionally, it’s going to be a tighter and tighter stretch as the years go on.

Through careful research and a long-term game plan, investments can help you grow your wealth at your own pace, generating potential returns that may beat inflation and allow you to protect your lifestyle and achieve your retirement goals.

Catapult with compound interest

You know how the movie Inception is about a dream within a dream? Well, compound interest is the interest you earn on interest — which means you gain interest on both your initial input, plus the gains from that input.

Based on this, you can see how your wealth can snowball when you're planning your investments. Imagine the extra hours you’d have to work to earn that amount of money, when you could do this while sipping coffee on a beanbag.

Don't bank on it all

Remember that piggy bank/milo tin can you had as a kid? While stowing money away in a Savings Account (with a bank) might intuitively feel like the best way to safeguard your savings for the future, you might have to think of the opportunity cost of stashing it there. More often than not, the performance of your savings is reliant on how well the account’s interest rate measures up to inflation. On top of that, most financial institutions offer security in exchange for low interest rates. It’s always good to leave some in there for a rainy day, but don’t be afraid to soak up the sunny interest rates by investing the rest of it!

Reach your financial goals

With the power of compound interest on your side to fend off inflation, investments could be your best bet to reach your financial goals at the right time. Be it housing, a car, college fund or retirement, planning ahead to set specific goals, work out how much you need is good. Then pick an investment tool that can take you there in your desired timeframe.

Diversify your income

In times of an unstable economy, job security is one of the foremost worries that jump to mind. As such, it might be a good idea to plan multiple streams of income in case one of the streams gets cut short unexpectedly. Having a diverse investment portfolio could help tide you through a difficult time by making you more financially resilient.

How do I start investment planning?

Seeing the multiple benefits of investments, the next question you must be asking yourself is: How do I get started to plan all this? With tonnes of information overload and a host of advice (“Ride the curve”, “Buy low, sell high”), finding a starting point could have you going around in circles. To make things easier, here are some simple steps to ease into your investing journey:

Start investing early

Seeing that the power of compound interest increases exponentially with each year, you’d want to give your money a longer runway to take off. Warren Buffet, who bought his first stock at 11, famously said that he wished he had started even earlier. Who are we regular investors to say otherwise?

Begin by setting aside time from your schedule to subscribe to podcasts, talks and videos to help you understand the principles and terms behind the investment market. It can be as simple as swapping out some music time on a ride home to listen to the basics of investing.

Next, do some research and planning before setting up your trading account and consider the various pros and cons of trading platforms, such as the ease of use and broker fees among other factors. To further diversify, you could look into various Investment-Linked Policies (ILP) that offer a hassle-free way to stretch your dollar without having to constantly keep an eye on your portfolio! Find out what is an ILP and if it is suitable for you here.

Investment Linked Plans

Investment-linked policies (ILP) generate potential investment returns with protection for life

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Do the Math

A general rule would be to leave about six months of your current salary or expenses for safekeeping in a Savings Account that is at your disposal in case of any emergency, such as a loss of employment or urgent medical bills². Of course, it’s up to you what you feel safe with. Simply look at your monthly expenditure and savings, and work backwards to figure how much you can afford to put into your investments. Remember to read up, plan prudently and understand the risks associated with any investment.

Set targets

Once you have that magic figure to start with, the next step is to figure out your goals. It’s always good to ground them in terms of assets that you need in your life, such as a house, a car, and of course, your retirement. Work backwards to see how much you need to grow your wealth, and the timeframe that you need to achieve this, and this will give you a gauge on how to spread out your investment portfolio.

This is where you can decide on your risk appetite, planning to factor in your age group and financial responsibilities (e.g. existing loans). In general, the earlier you start, the more you can afford to have some higher risk investments that have the potential for higher returns. Even so, if it causes you undue stress and anxiety, there is no harm in considering safer paths that grow your wealth steadily and securely over time.

Basic investment planning strategies to consider as you start out

Dollar Cost Averaging

Dollar-cost averaging is a strategy to invest the same amount of money in a target security at regular intervals over a certain period of time, regardless of its price. By using dollar-cost averaging, you could lower your average cost per share and reduce the impact of market volatility on your portfolio. This is a good way to plan ahead and reduce the effort required to attempt to “time” the market to buy at the best prices³.

Rule of 72

The Rule of 72⁴ is an easy method to calculate how long your investment will take to double, given a fixed annual rate of interest. Simply divide 72 by the annual rate of return and you can get an estimate of how many years it will take for your initial investment to double!

At the end of the day, investing is a craft that requires experimentation and some degree of tailoring to your personal goals and risk appetite. As with all crafts, it requires hours of practice to hone your skills, so it’s best to get cracking right as you’re reading this. If you’re wondering how to get started on the right path that suits your investing style, use the Investment Calculator to find out right now!

Still feeling a little lost, and not sure where to start with investment planning? Check out Manulife Investment-Linked Policy (ILP) solutions and get in touch with one of our financial representatives to discuss your options that best suit your needs.