This article is for friends who are thinking whether to start learning about investing and start their investing journey or to continue leaving their money in the bank and find other avenues to grow their wealth. There are a few considerations that will shape your final decision.
1. Interest vs. Inflation
The most common motivation to start investing is to earn a higher interest than what the banks are offering, so as to beat inflation in the long run. We know how money has devalued over time. A $50 note may buy us a month of grocery 20 years ago but it is barely enough to buy 1 week of grocery now. Coupled with the almost negligible interest rate that the banks are offering, it seems like a bad idea to put all your money in the banks.
However, the good thing about putting money in the bank is that your capital (the amount you put in) is guaranteed and you can withdraw anytime. Investing in stocks comes with risk and you may face a situation whereby you are stuck as the share price falls below your breakeven price and selling away your shares will incur a loss of your capital.
Sp, if you are a super low risk investor who wants to safeguard your capital and at the same time wishes to get more interest in the long run, this article may be useful to you.
2. Investing For Passive / Extra Income
Investing in stocks is a great way to make your money work harder for you and ensure that you are en route to your retirement sooner than expected.
Imagine owning a stock that gives a 5% annual returns in the form of dividends, you will be getting:
$500 per year or $41.67 per month if you invest $10,000.
If you invest $100,000, you will be getting $5,000 at year or $$416.70 per month.
If you have $300,000 to invest, you will be getting $15,000 per year or $1,250 per month.
These are passive income that does not require you extra work such as taking on another job.
If the company that you invest is stable and is growing its business, the share price may increase over the years and you will get capital gain on your initial investment, while having passive income coming to you every month without doing much.
Take for example, if you had bought UOB shares last year (March 2020) when the start of the pandemic caused a market crash and each share of UOB stock cost you $18.96, you would be collecting around 5.2% dividend every year. On top of that, your investment would have a capital gain from $18.96 to the current price (21 Oct 21) of $26.80, a gain of 41.3%. If you have invested 100,000 back then, your investment (even without counting the dividends) would have worth $141,300 today.
It is like owning a property whereby you collect rental every month and at the end of a 10-year rental period, your property actually increases in price. You can then sell it off to get the profits of price appreciation of your property, redeem back your initial purchase price, on top of the rental you have collected every month.
Bigger Risk Appetite
If you are willing to spend more time to learn options trading and then spend a couple of hours for a few days every week to monitor and trade the US market using options, you may be earning more rewards in your investing journey.
If options trading brings a conservative average of 2% per month, 24% returns in one year,
you will be earning $24,000 per year or $2,000 per month if you invest $100,000
If you invest $300,000, you could be earning $72,000 per year or $6,000 per month.
I hope to guide you the concepts, fundamentals and strategies of options trading over a regulated pace (just in case you get too excited about the returns) so that you can have the knowledge to gain very good returns on your investment. I have consolidated all the articles on options trading in this section:
3. Tax Return on Capital Gains
If you are an investor or trader like me living in Singapore, you will be pleasantly surprised to know that our Government do not impose any tax levy on capital gains or dividend, which means no matter how much money you made from the stock market, you do not need to pay a single cent of tax. This is unlike US or European countries whereby capital tax can go as high as 37%.
Imagine you made $100,000 from your investment, you only get to keep $63,000 while the rest has to be returned to the government. In Singapore, if you made $100,000 from your investment, you keep the $100,000 and you are not breaking any law!
I hope that I give you a good perspective in this article on why and how you should start your investing journey, based on your risk appetite and the outcome you wish to achieve in the years ahead. I wish all of you the best of luck in achieving wealth and prosperity so that you can spend less time and energy in the rat race and spend more quality time with your loved ones and doing the things that are meaningful to you. Remember, money can only buy happiness when we have the happiness that money can’t buy us, such as good health, kinship, friendship, freedom…etc.