Random Post #11 – General advice for young investors in Singapore

Recently I’ve been talking about investing to some colleagues about 10 years my junior, and it’s really interesting to hear their take on things and understand their particular situations.

One thing in common is that they often have existing student loans to pay off, but at the same time still want to enjoy life and don’t want to sacrifice too much in the name of paying it off early.

So today I did up a few calculations that they can refer to which will hopefully give them the confidence to get started in investing.

Here’s the email I sent:

Scenario:

$10,000 loan with interest at 4% and payment over 10 years (monthly payment $101.25). Investment returns will be assumed as 9%, and cash returns @ 0%.

Option 1:
Pay off loan as per schedule, and save $100/month and just keep as cash savings:

Total Interest Paid $ 2,149.42
Total Savings/Return $ 12,000.00
Net Position $ 9,850.58

Option 2:
Pay off loan faster by paying additional $100/month (loan cleared at 55 months). After loan is paid off, invest $201.25 per month until month 120.

Total Interest Paid $ 951.03
Total Savings/Return $ 16,777.98
Net Position $ 15,826.95

Option 3:
Pay off loan as per schedule, and invest $100/month at the same time.

Total Interest Paid $ 2,149.42
Total Savings/Return $ 19,351.43
Net Position $ 17,202.01

Option 3 is clearly the best way assuming that the loan interest stays flat at 4% and that we expect 9% returns on our investment. (If the loan interest rate suddenly shot up past 9%, then you’d want to pay off the loan ASAP).

So how to get started? A regular savings plan is the way to go:

http://blog.moneysmart.sg/invest/posb-invest-saver-ocbc-blue-chip-investment-plan-poems-share-builders-plan-which-regular-savings-plan-to-use/

If you’re investing between $100-$500 per month, then then POSB invest-saver is probably your best option: https://www.posb.com.sg/personal/investments/trading-funds/invest-saver

At your age, you can afford to go 100% equities on your investment (meaning more risk but you can easily afford this risk at your age, if you have a long-term plan to just buy and hold, it will make your money in the long run – assume 9%).

The fund to invest in would be the Nikko AM Singapore STI ETF. This fund consists of the top 30 companies in Singapore and has been delivering 9% returns over the past 10 years. http://www.nikkoam.com.sg/etf/sti

Please get started on this early! You’ve got the best chance of getting a head start now and I’m very jealous that this is actually so easy for you to start. You will have an almost 10 year head start over me and you won’t end up getting conned into all the other crap out there (like I did). If only I had a time machine…

Best of luck and please keep me updated on your journey.

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