Ultimate Guide On How to Invest Your First $10,000

This article originated from my blog: Investing Beanstock

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Now that bank interest rates are at an all time low, you may be wondering “Hmm, where else can I put my savings to work instead of letting it collect dust in the bank?”

You ponder and search online for answers, only to be confused by the vast amount of suggestions; “set up emergency fund”, “Get a 70/30 Stock Bond Mix”, “Buy ETF”, “Put in Singlife 2%”, “Buy ILP!”, “Put them into Tesla Stock confirm huat”, “Bro just do Options, I just profited 20k”, “Invest in REITs”. While the above methods do give you an idea about putting your cash into better use, each method has it’s own Pros and Cons+ Risk that you have to consider very carefully.

And now you’re here reading my article, trying to figure out how to put your first $10,000 to generate higher returns, to counter inflation so that your money retains its value or even better. Before you scroll down, I want you to ask yourself 3 things:

1. What is your spending habits like?/What liabilities do I have?

2. How long do you want this investment to be? 2 years? 5 years? 20 years?

3. Have I set aside a 6 months emergency fund?

The next thing you need to understand is the trillema between risk, return and liquidity. The diagram above is pretty self explanatory. But to sum it up, if you are willing to forgo lower risk, you will be able to reap higher return, vice-versa.

Now that you answered those questions, I’ll share with you what I will personally do with the first $10,000 investment.

Disclaimer:

The content here is for informational purposes only and should NOT be taken as legal, business, tax, or investment advice. It does NOT constitute an offer or solicitation to purchase any investment or a recommendation to buy or sell a security. In fact, the content is not directed to any investor or potential investor and may not be used to evaluate or make any investment.

Do note that this is not financial advice. If you are in doubt as to the action you should take, please consult your stock broker or financial advisor.

Think of the Purpose

What is the purpose of this $10,000? There are many different ways you can invest or save for the future.

If you see different asset classes under a spectrum, risk and returns can range from ultra safe bank deposits to speculative investments such as Cryptocurrencies and Derivatives (eg Options/Futures/Swaps)

In the investment world, the possibilities are endless when it comes to what you can invest in. It is this dynamism that makes the financial markets a vibrant and thriving ecosystem.

So what is the end goal here? In investing, our goal is to invest _consistently_with a proven strategy that grows your wealth in the long run. Doing so allows your hard earned money to work even harder for you.(Even when you’re asleep)

Investment Returns are derived from 2 sources. They are:

1. Capital Gains (by selling the stock)

2. Dividends (by holding the stock)

People invest either for Income(Dividends) or for Growth (Capital Gains) or Both. One needs to understand the difference before getting into investing as different stocks/sector/market have their own unique characteristics.

For instance, the Singapore Market is mainly for Dividend investing due to the excellent Bank and REIT stocks having attractive yields of 5% or more with solid fundamentals. However, Singapore stocks have limited growth potential due to our limited size. As for capital gains(while possible), it is generally not as attractive if you compare to the US Market.

The US Market on the other hand, is mainly for Growth investing due to the size of their consumer market. With many big conglomerates and technology companies with international branding, the US market is filled with growth opportunities and one can easily earn more than 100% capital gains if you remain vested in the US markets. (in the long run)

Once you understand the difference, we can now move on and talk about the different options available based on different individual preferences.

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$50 bonus for the first deposit of $10,000 (or more)!

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Note: Bonus is applicable on the first deposit made only. The bonus will be automatically credited to your portfolio and invested along with your existing investments

1. For Conservative Individuals

If you are someone who is generally risk-averse, and can forgo higher returns for the sake of safety and liquidity, this portfolio is something that can be considered:

Singapore Exposure Portion (60%)

1. Robo Advisors: Syfe REIT+ (Risk Managed)-$3500

2. SingLife 2% (Warchest to deploy) -$2500

International Exposure Portion (40%)

1. Robo Advisors: Stashaway Risk Index 12%-18% -$2000

2. Robo Advisors: Syfe Global ARI Portfolio (20%) -$2000

Reasoning

This portfolio offers a diversified equity/bond mix based on a balanced portfolio and allows you to get into both International Market and Singapore Market Exposure.(60/40) Any time the market crashes, you can start to deploy the Warchest in SingLife 2% to average down on your investments. Of course this is not rocket science and you can tweak this portfolio at any point in time based on your preference and personality. This portfolio is purely for your reference and not a recommendation per se.

The reason why I chose Roboadvisors is because with a small amount of capital to deploy, transaction fees are pretty significant if it comes to DIY investing. Roboadvisors allows you to diversify without much effort and winding up huge transaction fees. The caveat is when your portfolio gets bigger next time (eg 100k), you probably should switch to DIY since Roboadvisor fees will start to eat into returns due to the recurring nature of fees.

*Bonds were not recommended for long term investment due to their measly returns now. You can also check out my article on why bonds may be unnecessary if you are a young investor in your 20s.

2. For Individuals with Higher Risk Appetite

As a young investor with a long time horizon ahead, I fall under this category. If you are like me, able to take on higher risks and take on higher market volatility and short term price fluctuations in hopes of higher risk-adjusted return in the long run (eg 10% or more), this is a portfolio I will personally adopt if I were to start investing again with $10,000:

Singapore Exposure Portion (10%)

1. Syfe REIT+ (100% REITs) -$1000

International Exposure Portion (90%)

1. Roboadvisor: Syfe Equity100 (100% Equities ETF) -$4000

2. Growth Stocks via Research (ARK ETFs, TSMC, Apple) -$3000

3. Chinese Growth Stocks via Research (Tencent, Alibaba) -$2000

Reasoning

This portfolio focuses on aggressive growth with 100% exposure to equities (Stocks) for an investor with a longer term time horizon(10 years). In the short run, this portfolio will definitely fluctuate due to the nature of the asset class involved but will also provide the highest risk-adjusted returns due to stocks outperformance in the long run.

Source: Google Images

As you can see from the graph, no other asset class came close to beating stocks in the long run. Therefore, if you are ready to invest for the long term and don’t mind short term market fluctuations, going 100% equities is the best way to achieve the highest risk-adjusted returns for retirement.

The reason why so much emphasis is placed on International Market exposure rather than Singapore is due to the different characteristics of the markets mentioned at the beginning of the article. This is a portfolio I will personally adopt but may not be suitable for an investor who do not know fundamental analysis. The individual stocks portion is an allocation whereby I do my due diligence in understanding the business, their balance sheet, income statements and cashflow statement and determine if they are suitable for long term investing.

Individual stocks also require a more active approach to investing since you need to constantly monitor the market to see if the growth story remains throughout the years you invest. The portfolio above can be tweaked and even include ETFs if you prefer more diversification or simply do not know how to value a company using fundamental analysis.

For low maintenance investors with higher risk appetite

If you feel uncomfortable owning individual stocks or a more active approach to investing, but still wants to enjoy higher risk-adjusted returns in the long run, you can consider this portfolio:

Singapore Exposure Portion (20%)

1. Roboadvisor: Syfe REIT+ (100% S-REITs) -$2000

International Exposure Portion (80%)

1. Roboadvisor: Syfe Equity100 (100% Equities ETF) -$4000

2. Roboadvisor: Endowus-Dimensional World Equity Fund -$4000

Reasoning

This is a full equities Roboadvisor portfolio! This means that as an investor you are putting in the least effort. All you need to do is pump the money into the roboadvisor and just call it a day. Dollar cost average consistently and withdraw the money near retirement. This is a complete passive approach to investing and will be suitable for busy individuals who have little time to learn about investing.

The only component that’s different compared to the other aggressive portfolio above is Endowus’ Dimensional World Equity Fund. The reason why I chose this is because Dimensional Funds are traditionally only offered for institutional investors with a minimum capital of $100k to start. It uses a Factor-Based Investing approach just like Syfe Equity100 but using completely different factors. You can read up more about it here.

If I were lazy or if I were to get busy in my career next time, I will gladly adopt this portfolio since it is easy to use, low effort and can provide me with higher risk-adjusted returns (in the long run) without me doing the ‘homework’ myself.

That’s it!

This pretty much sums up what I will do if I were to invest my first $10,000 again. In investing, it is important to understand that just like how every individual is unique and different, so does investing style and portfolio allocation. If you are a risk-averse individual, stick to a lower-risk portfolio, if you are able to take on more risk with a long term view, go for a more aggressive portfolio. At the end of the day, there are no right or wrong when it comes to investing, as long as you stick to your convictions and stay invested, you are bound to reap the fruits of your labour if you give it enough time to compound.

Warren Buffett: "Rule No. 1: Never lose money. Rule No.2: Never forget Rule No. 1"

Thank you for reading. I hope this allow you to see the possible things that you can do with $10,000 and it is totally up to you to allocate. As long as it is a sensible strategy, it will help you to hit your goals faster!

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Final Disclaimer:

The content here is for informational purposes only and should NOT be taken as legal, business, tax, or investment advice. It does NOT constitute an offer or solicitation to purchase any investment or a recommendation to buy or sell a security. In fact, the content is not directed to any investor or potential investor and may not be used to evaluate or make any investment.

Do note that this is not financial advice. If you are in doubt as to the action you should take, please consult your stock broker or financial advisor.