You will be able to say whether you are ready to invest and what to set up first.
By month eleven, half of Hui Min's office group chat seems to be about investing. One colleague bought shares in a company he read about on a forum. Another has a robo-adviser app and checks it every morning. Arjun asks Hui Min whether she has started yet, in the tone people use when they mean she is late.
She is not late. Investing works best as the last step in a sequence, and the steps before it are what make it safe to start. This lesson sets out that sequence, and the practical set-up you need once you get there. Nothing here recommends a product, a platform or an investment.
There are four things to have in place before your first investment.
Your budget is working. You know your take-home pay, your money goes out in a planned order, and you have tracked at least a month or two of real spending. Without that, you cannot know how much you can invest each month without needing it back.
Your buffer is in place. The emergency fund from lesson 4.3 is at its target, or close to it. The reason is simple: if an emergency arrives and your only spare money is invested, you may have to sell at a bad time to pay for it.
High-interest debt is cleared. A credit card balance or any other debt charging a high rate costs you more, with certainty, than almost any investment can be expected to earn. Pay it off first. A study loan at a moderate rate is a different case, and lesson 5.3, Pay early or invest the difference: how to decide, showed how to weigh it. You do not need to wait until it is fully repaid.
Your insurance basics are done. You know what cover you have, the gaps at the top of your ranking are dealt with or deliberately accepted, and your insurance brief from lesson 6.4 is written. Lesson 1.2 of The Singapore personal finance system, end to end, Protection comes before investing, explains why this step comes earlier than investing.
Investments such as shares and funds go up and down in price, sometimes sharply, and a fall can last for years. That does not matter much if you never need to sell during a fall. It matters a great deal if you do.
So the money you invest should be money you will not need for at least several years. If you are saving for a wedding next year or a flat deposit in two years, that money belongs somewhere safer, where its value will be there when the date arrives. Lesson 5.2 of How money works, Risk is about what happens when you need the money, covers this in detail.
To buy shares or exchange-traded funds listed on SGX, you need somewhere to hold them. There are two main ways.
A CDP account, with The Central Depository run by SGX, holds shares directly in your own name. You buy through a broker, and the shares are recorded in your CDP account. A custodian account, which many brokerage platforms use, holds shares on your behalf in the broker's or a custodian's name, with you as the beneficial owner.
Both are common, and each has trade-offs. When you compare, look at two things: the fees, including commission per trade, any platform or custody fees and currency conversion charges, and how your shares are held, since that affects what happens if the broker runs into trouble and how you receive dividends. Lesson 6.3 of The Singapore personal finance system, end to end, Where you can hold investments in Singapore, sets out the options. Check that any broker you use is licensed by MAS, and you can confirm that in the Financial Institutions Directory on the MAS website.
This course stops at the start line. Choosing what to invest in and running a portfolio over time are taught in Build and run an ETF portfolio. Spotting investment scams, which often target people at exactly this stage with promises of easy returns, is covered in Scam-proof your money.
Hui Min goes through the four steps honestly. Her budget is working, and she has no credit card debt. Her insurance brief is written. Her buffer is at S$3,600 against a target of S$5,200, because she paused the transfer twice during the year. Her AWS next month should close the gap, so she decides to finish the buffer first and open an account after that. Arjun, she notes, has not yet built a buffer at all, though he has plenty to say about stocks.
Where you stand on each step will be different, and so will the one step still in your way.
Tick off the readiness steps you have completed and write down the one you need to finish before investing.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).