How I Invested My First $5000

You might've received some ang pao money, or you just have some savings accumulated over the last few years. I'm currently 21, and quite a few of my friends have been asking me about how they should start investing or making the most out of their savings. I'll be recommending basic steps that you can take with your starting capital.

This article assumes that you're totally new to investing and that you are more focused on parking your money somewhere and forgetting about it as it grows steadily over a long time horizon.

This article is a more condensed version of my video here: https://www.youtube.com/watch?v=gU5yMQqzt0I&t=82s . In this video, I include more details and elaborate a little more.

Disclaimer: I am NOT a financial advisor. The goal of this article is to highlight basic steps you can take, and show you my thought process and asset allocation so your own research process is a little bit more guided. I'm just someone who's interested in this field and please take my advice only after you do your own research.

Firstly, I'll be listing the ways that you can use the $5000 dollars, then ending off with my personal allocation and general advice.

Roboadvisors

In Singapore, there are many great roboadvisors available - like Stashaway, Syfe, Kristal.AI . Roboadvisors are getting really popular - in Singapore's own Stashaway, they currently manage over 1 billion dollars in assets.

What are roboadvisors??

Roboadvisors are platforms that use algorithms to manage the money we deposit in there and automate the process. They usually ask for your goals, for your risk appetite and expected investment time horizon.

This is a broad overview of the typical flow:

_Step 1: _Sign up with your email/phone number and answer a bunch of questions about your risk appetite and intended investment time horizon.

_Step 2: _Deposit your funds! You can also set up a plan to deposit at set intervals. Consistent investmenting is called dollar cost averaging, but you can read up about that on many other sources.

_Step 3: _After the money is deposited, the buying process begins ~ These roboadvisor buys assets, which can range from ETFs to commodities to bonds. The portfolio makeup depends on your responses to the questionnaire and the algorithm behind the robo.

To me, these are the main benefits of using a robo-advisors:

1. Super low maintenance: Once you set up an account, answer a questionnaire (usually takes around 15-30 minutes) and deposit your money, the roboadvisor does the rest of the work. It's a stress-free process!

2. Relatively low fees: If you were planning on letting your money sit in a low-interest savings account, a roboadvisor would still likely yield better returns over the long term. So to me personally, it is worth paying for these fees when you're just starting out.

3. Low starting capital: To make an account, you don't need much starting capital. Major roboadvisors have no minimum account balance required, so technically you could start with as little as $20. But this is not recommended, since the fees will probably erode the profits from investments if you invest such a small amount.

Some cons include:

1. Getting lazy: When your investments are so automated for you, sometimes you have no idea what's going on in that black box. I think it's still important to know what they're doing, like what funds your roboadvisor is vested in and so on. Take it as a good chance to learn more about basic investing.

2. Fear: There will be moments when your portfolio is down. This might be due to short term downwards movement in the stock market. If you're totally unaware of what you're vested in, you might panic and withdraw your money, which means that your losses have been realised. Instead, if you have confidence and knowledge of what you're vested in, you can just leave your portfolio as is for the longer term.

3. Fees (depends): Once you're able to do these things yourself and your capital grows to a pretty big size, say $20K and above, you might find yourself paying quite a lot of fees. If you have the knowledge and confidence to do your own investments, you might find that it's not worth it.

ETFs

ETFs stand for exchange traded funds. That sounds really fancy, but it's really a basket of different stocks that are squashed into one stock. An ETF helps to aggregate some stocks and bundles it together into one neat little package. There are ETFs for everything - clean energy to fintech to aviation.

For instance, $ARKK currently has 55 individual stocks in its holdings, and saves you the hassle of buying each of these stocks individually. To buy a stock, you have to open a brokerage account. I personally use Tiger Brokers, but there are so many different brokerages out there that you can use as well.

Note that if you're already putting your money in a roboadvisor that buys ETFs, check what ETFs are not in your roboadvisor portfolio first to avoid overlap and paying double fees. There are many tools online available, but this one is the easiest to me.

Stock Picking

Reserve some money for stock picking. Out of $5000, assuming that you have no prior knowledge in investing, you can choose to reserve a smalllll amount of money for individual stock picks. I recommend around 5-15%.

I won't go too deep into due diligence processes, but putting your money where your mouth is is a great way to start investing in individual stocks if you'd like.

High Interest Accounts (Bank / Insurance)

This can be a bank savings account, or a flexible insurance plan like Singlife. You can look for high interest bank accounts in your country, and especially for students, there may be higher yield plans targeted at university or high school students.

This is more applicable for Singaporeans, but there's an insurance savings plan that allows you to earn 1.5% returns (not guaranteed) for up to $10K. This is really not bad, considering the interest rates that other bank accounts offer.

How to allocate all of this??

When I first started, my ratio was 60/20/20.

• 60% in a roboadvisor

• 20% in ETFs /stockpicks

• 20% in something liquid but high interest, like SingLife account.

My thought process was like this:

I wanted to passively invest, but also learn about stock picking and various growing sectors at the same time. Hence, I allocated more than half of my savings to a roboadvisor account. This is because I don't expect to touch it for the next few years, but I wasn't satisfied with the idea of leaving it in my bank account.

I also put 20% in something liquid, but high-interest like the Singlife account. I still stay with my parents, so I don't have big ticket expenses like rent or a car.

Outside of this 5K, I still have a bit of money in my bank account for convenience, like monthly spending and Paynow/Paylah.

Now, my asset allocation has shifted to something like this: 40%/ 20%/10%/30%

• 40% robo

• 30% ETFs

• 20% individual stocks

• 10% Singlife

This is because I managed to grow the money in my robo account and I also beefed up my investment knowledge, so I started to choose individual stocks and sector-specific ETFS. In a way, I've slowly decreased my dependency on roboadvisors, but it's a nice way to passively invest and is definitely something I'll continue to do in the long term - at least until I graduate from university.

General advice

When you're just starting out, I'd recommend you guys to set up a plan for yourself.

• Do you plan to invest $5000 as a lump sum and that's it, or $5000 + recurring investments?

• How much can you add to your portfolio every month?

Since I like being fully transparent, I set up a recurring payment system that automatically transfers $150 every month to Stashaway. I actually stopped using Stashaway after a year and moved to Syfe, but I earned around $700 in passive income during that period.

At the end of the day, there is NO perfect answer to how you should allocate your money and anyone telling you a definitive way to do so might not know your situation as well. I'd advise you to tweak the numbers around and see what works best for you. If you're someone who wants to be hands on with your investments, maybe you can portion out 30% for individual stocks or ETFs and then 50% for robos.

If this article helped you, I hope that you'll consider commenting and checking out my video ~ it means a lot to me and it'll be great to know if this content helped someone out there.