Write a short investing goal with an amount, a time horizon and the largest fall you could sit through.
Before you choose any ETF, write one page that states four things: what the money is for, the earliest year you might need it, how much goes in at the start and each month, and the largest fall in dollars you could watch without selling. It takes about 20 minutes.
A vague intention such as "for the future" or "whatever's left over" can't help you choose a fund, decide how much risk to take, or stay calm when prices fall. Take Nadia, 28. She's an invented example and her figures are made up, so use your own when you write your page. She has been saying "I want to start investing" for two years. When a friend asks what the money is for, she says "the future". When the friend asks how much, she says "whatever's left over", which gives her nothing to plan with.
First, write what the money is for in one line. It doesn't need to be grand. "Long-term wealth" or "retirement on top of CPF" are both fine. What matters is that it's written down, because money with a named purpose is harder to raid for something like a holiday than a pile with no name. If you have more than one long-term goal, pick the one this first ETF serves. You can add the others later.
Nadia writes that the money is for long-term wealth, probably to top up retirement, and that it isn't for the renovation or anything else with a date.
Next, write your earliest year: the soonest year you could realistically need to withdraw the money. This may be sooner than the year you'd like. It tells you how long you have to wait out a fall, so it sets how much risk the money can carry. If the year is within a few years, the money may not belong in an ETF yet, and you should go back to lesson 2.1, "Money you need soon does not belong in shares".
Nadia doesn't plan to touch the money before her late forties and can't think of anything that would force her to. She writes 2046, twenty years away.
Both amounts come from work you've already done. The starting amount is your long-term pot from lesson 2.1. The monthly amount is the figure you tested in lesson 2.2, "Buffer and expensive debt first, then investing". Write both down. Then multiply the monthly amount by sixty and add the starting amount to get the total paid in after five years, before any growth or loss. You'll need this figure for the fall in the next part, and again in module 7.
Nadia writes S$5,000 to start and S$500 a month from salary. She already saves that much without strain, and her budget has room even in a heavy month. S$500 x 60 = S$30,000, and adding the S$5,000 start makes S$35,000.
This step is the one that makes the page useful. Write the largest fall you could sit through: the biggest drop, in dollars, you could watch on screen without selling. Write it in dollars rather than as a percentage. A 30% fall sounds manageable in a lesson, but seeing S$10,000 vanish from your own account feels very different.
Work from the balance you expect in a few years, which is the five-year total you just worked out, rather than your starting balance. The falls that test people usually come once the balance is big enough to notice. A sensible starting point is one third of that future balance, because broad share markets have fallen by that much and more in the past. Adjust it from there to what you could actually stomach.
If your number ends up much lower than a third of your future balance, that's worth knowing early. It means your first fund may need to take less risk, or you'll need firmer rules for what to do in a fall. Module 5 uses this number when you choose a fund, and lesson 7.5 uses it again when you write those rules.
A third of Nadia's S$35,000 is about S$11,700. She looks at it for a while, decides it's a little more than she could stomach, and writes S$10,000.
Nadia's finished page has six lines:
Purpose: long-term wealth, probably to top up retirement Earliest year: 2046 Starting amount: S$5,000 Monthly amount: S$500 from salary Total paid in after five years: about S$35,000 Largest fall she could watch without selling: S$10,000
Every line on it is specific. The page leaves out a target return, any prediction about markets and a fund name on purpose. Those come later, and they're easier to decide once the page exists.
Keep the page where you'll find it again: a note on your phone, or a printed sheet in a drawer. Lesson 5.1, Start from the goal, not from the fund, picks it up again, and in a fall you'll want it within reach. Your figures from lessons 2.1 and 2.2 are all you need to write your own.
On one page, write your investing goal: purpose, horizon, starting amount, monthly amount and the fall you could sit through.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).