Asked on 12 Mar 2019
I have little to no savings, I plan to start investing with as little as possible but wondering whether this is the right move
Hi, good question, and as with most important decisions in life, it's always about finding the right balance, for yourself. I think others have given you a good perspective. Let me share something slightly controversial: some fruit for thought.
With little to no savings, investing with whatever spare cash you have could be dangerous, especially if you're value-investing. Value investing (see my other posts) requires that you hold the investment for sustained periods of time (normally 3 years). If you suddenly have an emergency (medical, family, personal etc) and need the money, you may be forced to sell your investment at a loss. Typical financial advice suggests that you keep between 3- 6 months of expenditure as "emergency savings". Note that this is "expenditure" and not "gross income".
Without knowing the exact figures, your current income level, your potential income level (highly correlated with your education level in Singapore, especially in your early career), it's hard to give precise advice. But let's assume that you have $X in cash and wish to invest all of it, and assuming that you're fairly decent in investing and average 20% per annum, at the end of a decade, $X becomes around $6X. Huge returns right?
Well, not really. It really depends on how much X is, relative to your current income. At lower income levels, and especially early in your career, the amount of X you have to invest could be a very low percentage of your total income, simply because there are certain things that we ALL have to do: eat, drink, travel, rent a room etc. After subtracting all these, you dont really have much X left. Conversely, as your income grows (and because you've been reading Seedly) but your "quality of life" maintains its current level, your X (the amount of $ that you can save) becomes much higher (both in terms of % as well as absolute amount).
Long story short, it may make sense in your earlier years to see if you can "re-invest" your $X to increase your primary income skillset, so that you can make more income: this could come in the form of buying coffee to your mentors to learn from them, attending more workshops/seminars to improve your skillset, getting more certifications etc.
A numerical example may be more illustrative: Say you are earning $3k in gross income, and save around $300 a month after expenses (e.g. CPF, eat, drink, travel, rental, filial piety money to parents etc). So in this case, you have 10% of your income every month to invest. After 12 months, you have $3.6k. Two scenarios:
Scenario A: invest at 20% per annum and make around 22k back in 10 years?
Scenario B: invest in yourself, change to a higher-paying job, perform better and get higher annual bonus and increase your salary from 3k to 4k? 3k to 5k? Most salary increases tend to last for a while. So a 1k increase in monthly income this year, will likely persist through for at least the next couple of years.
Which scenario gets you more $ in the long run?
I've mentioned this a few times but when starting out with a small portfolio, don't get caught up with percentages. Look at the absolute dollar figure return.
Even if you invest 100 a month, and in the first year you make 10% return, that's still only a $120 growth.
That's something you can earn over the weekend taking a part time job.
When you don'y have a lot to begin with, spend more time earning additional income because the risk you take to earn that $120 is a lot.
Small investments add up yes, but it's also important to extract the most economic value from yourself as well.
You don't have to rush things. Grow your capital first, save 6 months of money as an emergency expense, and when you have about 10k in excess, then start investing.
Invest in yourself first, like what others have described in detail. Acquiring skills to obtain higher active income and build up knowledge in personal financial education for the long run. Once you achieve a higher income and ready to invest, then you will not come back to ask what to invest in?
Just save the money first, whereby saving is the most important root to grow your assets. Save while put your money in high interest saving account like CIMB fast saver account. After one year of saving you may do some regular saving plan. In few years time capital enough and with 6months of emergency funds then transfer some to investment. Like stocks etc.
Attend courses/workshop on investing to network and learn from people/mentor who are experienced in investing. When you have built up and saved enough(3-6 months of your expenditure) you will then be ready to start investing with better decisions
Find a job that pays a decent salary income or start a business that is profitable and provides you with income. With little to no savings, you shouldn't be focused on investing.
Save the minimum 6 months to 1 year of emergency funds before investing. Simple but fundamental advice, imo. Investment funds should be monies you are willing and able to lose, and able to keep locked up. Hope this helps!
1) Don't limit yourself with "as little as possible" Mindset from the start... 🙏😇 Your wealth potential is limited by what you are willing to do to save enough at the shortest time for emergency fund, insurance, buying your first home, and investing.
It's quite normal for most of us to start out with little to no savings, unless we are from rich family. So you need to build your wealth from a small amount, and don't have the wrong expectations of achieving enough for investing by saving "as little as possible".
However, starting with the wrong Mindset of "I plan to start investing with as little as possible" could be the recipe for NOT accumulating enough wealth for retirement.
It should be "Save as much as possible and spend on necessities."
2) Investing too little an amount in one investment could be counterproductive as it could lead to poor Risk-Reward. You could be getting less reward for the risk in investing and might as well keep in slightly illiquid FD, SSB, Govt bonds, etc.
3) Next step is to increase potential savings by increasing your income potential. This could be done through investing more time and effort on improving your skillsets to access better paying jobs.
Another way is to optimise the "Returns on Efforts" by looking out for another industry or job functions that can pay better using the same skillsets too. Leveraging your existing skillsets to do higher value added jobs would be better use of your limited resources.
Imagine you say this to your prospective employer during interview...
I have little to no skills, I plan to start learning with as little as possible but wondering whether this is the right move.
“Save then invest”
I would advise saving first to build up your emergency fund in a high interest rate savings account. This offers a margin of safety for yourself. Then after that consider investing. At the same time, look for opportunities to increase your income.
Have patience to build up your resources, secure your base then explore from there.
For any unforseen events, should you need to liquidate your investments, there is a risk that the amount might be lesser than the amount you put in.
You can start with as little as $100 per month. You can look into Regular Savings Plans and Robo-advisors such as Stashaway.
However, do make sure that you have an emergency fund of about 6 months' worth of expenses before you start investing.