Step-By-Step Guide to Stock Investing in Singapore
6 November 2017
When you’re ready to start investing, the stock market could be a natural first place you turn to. Most Singaporeans, even if they never invested before, know about the stock market, or more specifically, the Singapore Exchange (SGX).
The SGX acts as a market for people to buy and sell stocks. For many, when you start investing, you will likely turn to an online platform to carry out your trades and start building your investment portfolio.
For a start, you may think of investing in well-known companies in Singapore, such as Singtel, DBS, OCBC, Singapore Airlines, Keppel Corp and CapitaLand. These are companies listed on the SGX and you can start adding them to your portfolio.
The SGX isn’t a grocery store where you can go to see, smell and touch the goods you’re actually buying and put them into your cart. So how do you start investing in these companies? Here’s a step-by-step guide on how you can get started.
#1 Open A Brokerage Account
Before you start buying stocks listed on the SGX, you first need to open a brokerage account. Having an account with an authorised broker gives you access to buy and sell stocks on the SGX.
There are many stock brokerages in Singapore that you can choose from. Here’s a list of some of the more popular firms that many retail investors use.
- CIMB Securities
- DBS Vickers
- Maybank Kim Eng
- OCBC Securities
- Phillips Securities (POEMS)
- Standard Chartered
- UOB Kay Hian
With the exception of FSMOne and POEMS, you would notice that most brokerage firms are either directly linked or have some form of affiliation with a commercial bank operating in Singapore.
Which Brokerage Firm Should You Choose?
The first thing most investors look at is the commission charged by the broker. A quick check across brokers in Singapore would reveal that most firms charge similar commission rates between 0.12% and 0.275% of trading value, or a minimum of between $10 and $25 per transaction. This would also vary depending on the type of trading account you choose to open.
Aside from commission charges, there are several other factors you should also consider when choosing a firm.
Fund Transfer: When you buy stocks, you need to think about how you’d like to pay for them. Some investors may find it more convenient to open a brokerage account with a bank that they already have a savings account with.
For example, if you already have an OCBC savings account, you may prefer opening a brokerage account with OCBC Securities. By doing so, stocks that you buy can automatically be paid for using money in your designated OCBC savings account. When you sell stocks, the money would be automatically credited into the same account.
You can also choose to pay for your stocks through other methods such as Automatic Teller Machines (ATMs) or through GIRO.
Overseas Investments: You may be starting out your investing journey with stocks listed on SGX. As you become more experienced, you may venture into investing in overseas markets as well. If that’s a future possibility, you may want to consider using a broker that allows you to invest in some of the major overseas stock markets. This saves you the hassle of opening up another brokerage account in the future. It also gives you the ability to monitor your investments on a single platform.
Do note that buying and holding overseas stocks tend to come with additional charges, including exchange rates and fees associated with custodian accounts.
Platform: Not all brokerage platforms are built the same. We suggest trying out a demo account whenever possible with the brokerage to sample the service and platform. If you can’t try a demo account, you can find out from more experienced friends about how user-friendly the platform is before you open an account with any firm.
#2 Open A CDP Account
If this is your first time buying stocks in Singapore, you also need to open a Central Depository (CDP) account.
Think of a CDP account as a vault that stores all the SGX stocks that you have bought in a centralised location. In most cases, when you buy a stock through a brokerage firm, the firm doesn’t keep it. Rather, it goes into a CDP account held under your name. The benefit of this is that you can easily move to another firm to continue buying and selling without worrying about your holdings.
Do note that not all brokerage firms will automatically deposit the stocks you bought through them into your CDP account. For example, FSMOne and Standard Chartered will hold the stocks you bought as a custodian on your behalf.
#3 Start Off With A Strategy
When you are new to investing, it’s easy to become too excited and do too much, too quickly.
For a start, set for yourself small and realistic targets. You can start off with index investing, putting a small amount of money into the Straits Times Index (STI) Exchange Traded Fund (ETF) each month. Index investing enables you to get exposure to a diversified portfolio of high quality companies on the stock exchange. Along the way, you can slowly add individual companies or even other asset classes once you become more familiar with your investments.
Your initial strategy should also include how much money you are investing and how often you would invest. Even if you already have $20,000 set aside to invest, it doesn’t mean you should do it all at once. Instead, you should space out your investment over time.
Commonly referred to as dollar cost averaging (DCA), this strategy of investing a fixed amount of money each month, rather than to invest all at one go, allows you to invest without having to worry about when is the best time to buy stocks.
The simple advantage that DCA brings is that it allows you to invest without having to worry about timing the market. You simply buy more stocks when prices go down, and less stocks when prices go up.
Always remember that your investing journey is a marathon, and not a sprint. You want to start off at a pace that you are comfortable with and take it from there, rather than to sprint out of the gates and make unnecessary, and costly, mistakes.
Neither are you racing against other investors. Hence, do not simply copy the investment strategies of other investors without first understanding for yourself why each investment strategy may or may not work for you. Always bear in mind that other investors may have their own risk appetite and investment timeline.
#4 Understand The Various Types Of Assets On The Stock Exchange
It’s easy to assume that you can only find stocks on the stock exchange. While that might be true when SGX first started in 1973, today’s exchange comprises various asset classes beyond just stocks.
For example, you can find retail bonds on the exchange. These include bonds issued by Genting Singapore (Genting SP5.125%Perp), Hyflux (Hyflux 6% PerCapSec) and CapitaMall Trust (CAPITALDMTR S$350M3.08%B210220).
Unlike stocks, where people invest with the hope that prices would appreciate over time when the companies grow, bond prices do not fluctuate as much and are generally traded near the price they were first launched at. That makes it a more stable asset class with predictable cash flows.
Other asset classes you can find on the exchange include real estate investment trusts (REITS), exchanged traded funds (ETFs), warrants and daily leveraged certificates (DLCs).
This makes it important to understand what it is that you are investing in, especially since some of these investments carry much higher risks.
#5 Constantly Review Your Strategy And Investment Objectives
Once you get familiar with investing, it’s easy to continue building on your knowledge to learn more and to try out new strategies in order to make better returns. That’s fine.
That said, it’s always important to ensure that new strategies you introduce fall in line with your investment objectives. For example, your original plan may have been to invest in high quality dividend paying companies primarily to build a secondary source of income.
Along the way, you will definitely start reading up more and have conversations with friends and relatives who are in the “know”. This may lead you to invest in companies on rumours or media hype, in the hopes of making a quick buck if the company turns around in the future. This buy-low sell-high strategy would be very different from what you originally set out to do.
Always take the time to periodically review your strategy to ensure that it’s in line with your objectives.
Start Investing Today
There are of course many other areas of investing that you also need to learn. You can even read the articles we have written about various types of investing mistakes that people make. In the meantime, we always advocate for people to start investing early to benefit from a longer time horizon for their money to grow and ride out volatility.