Clueless about investments? They are not as hard as you think. This workshop was created to help participants understand the basics of the financial instruments that they can use to achieve their goals.
2. DISCLAIMER
This information contained within this presentation has been obtained from
sources that author believes to be reliable and accurate but no representation
or warranty, expressed or implied, is made as to the fairness, accuracy,
completeness or correctness of the information. Neither the author nor any of
his associates, nor any director, officer or employee of his company accepts any
liability whatsoever for any loss arising directly or indirectly from any use of this
presentation.
The presentation is being made available to you solely for your information only.
It does not have regard to your specific objectives, financial situation and
particular needs.This presentation is not intended for distribution to any other
person.The information in this presentation may not be reproduced in whole or
in part without the prior written consent of the author.
3. FEELING OVERWHELMED?
Buy high dividend
paying stocks only. Don’t
bother with the rest.
~ HuatZone Forums guru
KeyboardWarrior
9413 strike 2
times last month!This
time sure strike again!
~ Uncle Wah Boh Lui
My follower made $10,000 in
just one trade last week from my
call. You can too! Come to my
preview course to find out more.
~ Chart Wizard Hindsight Master
This fund has consistently beat
the benchmark for the past 3
years.You probably won’t go
too wrong buying this fund.
~ KampungBank Banker
FeetBook is an up and
coming tech company.
Target price: $8.88. BUY
~ Flip-Flop Securities Research
Latest stock tip.
TakeMeOver is rumoured
to be a takeover target.
~ Colleague Jin Zui Tips
Don’t risk losing your
hard earned money. This
policy is much less risky than
stocks and shares.
~ Aunty Lulu Insurance Agent
Land is limited in
Singapore.You can never go
wrong buying property. Grab
as many as you can.
~ StreetsOfGold Property Agent
4. DOYOU HAVE A PLAN?
Random?
Opportunistic?
Gamble?
HOW HAVEYOU BEEN INVESTING?
5. Strategy /
Risk Management
INVESTMENTS CAN BE PURPOSEFUL
Plan Execute
Investment
Objective
Time Horizon
Financial Goals
Specific
Instruments
Allocation
Specific Funds /
Securities
Target Asset
Allocation
Feedback
Changes in
Circumstance
Market outlook
Risk Appetite
6. PLAN
• What is your investment objective?
• Passive income, retirement fund, children’s education fund, etc.
• What is your time horizon?
• Short (3-5 yrs), Medium (5-10 yrs), Long (>10 yrs)
• Determine your financial goal as specific as possible
• e.g. to have a retirement fund of $1.5M by the age of 60
• Determine the inputs required to reach that goal
• e.g. to set aside $1000 a month, assuming a return of 5% p.a.
8. TERTIARY EDUCATION PLANNING
Time horizon
18 years
Goal
Provide for daughter’s
tertiary education
(local - 4 yrs)
Current fees/allowances:
$12,500/yr
Goal = 1.06^18 x 4 x $12,500
= $142,700
(assume edu inflation of 6% p.a.)
$368.40/mth
UseTVM calculator:
PV=0, FV=-142,700, N=18x12, Rate=6%,
9. WHAT DO PEOPLE COMMONLY INVEST IN?
UnitTrusts
Funds
Exchange
Traded Funds
Money
Market Funds
ILP
Products
Endowments Investment
Plans
Bonds Commodities Properties CashStocks
Underlying
13. STOCKS
Bonds Commodities Properties CashStocks
Underlying
• Share in the ownership of a company
• Have voting rights
• Entitled to share of profits or claim on assets
• Profits are often paid out to shareholders as dividends
• Dividends are not mandatory (Many companies do not pay
dividends)
14. STOCKS
Bonds Commodities Properties CashStocks
Underlying
• Two sources:
• Primary market: IPO
• Secondary market: Stock exchange
(e.g. SGX)
• To buy and sell in secondary market, go
through brokers
16. BONDS
Bonds Commodities Properties CashStocks
Underlying
• You ‘lend’ money (principal) to an entity (e.g. company,
government)
• Entity pays you a fixed interest (usually every 6 mths)
• At maturity, entity returns you your principal
• Often used a portfolio stabiliser
Payout Period
Fixed Maturity Period
Principal
Principal
Coupon payments (1/2 yearly)
17. COMMODITIES
Bonds Commodities Properties CashStocks
Underlying
• Precious metals (e.g. gold, platinum)
• Energy (e.g. Crude oil, coal)
• Agriculture (e.g. wheat, corn, rice)
• Difficult to invest in physical asset (other than gold)
• Can invest through proxies*
• Companies that deal with commodities (mining, trading)
• Funds (ETFs, unit trusts)
• Futures
• Generally favoured during periods of perceived high future
inflation
*Source: http://commoditiestradingsg.blogspot.sg/2011/04/how-to-invest-in-commodities-in.html
19. PROPERTIES
Bonds Commodities Properties CashStocks
Underlying
• Factors
• Freehold / Leasehold
• Rental yield
• Proximity to public transport, shopping malls, good schools
• Catalysts (New developments)
• Occupancy rate
• Feng shui
20. PROPERTIES
Bonds Commodities Properties CashStocks
Underlying
• Calculating yield
Net rental yield =
Gross rental - Expenses
Property price
Yield on invested capital =
Gross rental - Expenses - Interest
Invested Capital
21. CASH
Bonds Commodities Properties CashStocks
Underlying
• Bank savings or in fixed deposit
• Protected under Singapore Deposit Insurance Corporation
(SDIC) at max $50,000 per bank*
• Work towards 3 to 6 times of your monthly expenses for
emergency needs
• Retain savings for short term needs (<3 yrs) in cash
*Refer to www.sdic.org.sg for participating banks.
22. UNITTRUSTS
Bonds Commodities Properties CashStocks
Underlying
• a.k.a. Mutual Funds
• Basket of stocks and/or bonds
• Actively managed by a group of fund managers
• Every fund has an objective/mandate which the fund
managers are required to adhere to
• Benchmarked against an index
24. ETF
Bonds Commodities Properties CashStocks
Underlying
• a.k.a. index funds
• Objective is to replicate a particular known index
• Passively managed, which may result in lower expense ratio
than unit trusts
• Traded in a stock exchange
• Price determined by market maker, not supply-demand
• Types*
• Cash-based
• Synthetic
• Swap-based
*Types based on available ETFs traded on the SGX.
Source: http://www.moneysense.gov.sg/understanding-financial-products/investments/types-of-investments/exchange-traded-funds.aspx
25. MONEY MARKET FUNDS
Bonds Commodities Properties CashStocks
Underlying
• Low-risk
• Invests in cash equivalent assets
• Gives slightly higher interest than bank deposits
• Not insured under Singapore Deposit Insurance Corporation
(SDIC)
26. INVESTMENT LINKED POLICIES
Bonds Commodities Properties CashStocks
Underlying
• Hybrid insurance-investment vehicle
• Charges for protection benefits are deducted monthly
according to age and sum assured
• Advantage: Flexibility to reduce premium / sum assured
• Disadvantage: Protection charges increases exponentially with
age
27. ENDOWMENTS
Bonds Commodities Properties CashStocks
Underlying
• Savings plans by insurance companies
• Fixed maturity period determined at start of policy
• Maturity benefit consists of a guaranteed and non-
guaranteed portion
• Protection benefits varies from plan to plan
• Guaranteed Issuance Offer (no medical underwriting) plans
are increasingly popular. Note that their protection
benefits are very limited.
29. ENDOWMENTS
Bonds Commodities Properties CashStocks
Underlying
• Many variants, but can be classified into 3 main types
• Classical (e.g. 5-pay-10)
Accumulation Period
30. ENDOWMENTS
Bonds Commodities Properties CashStocks
Underlying
• Many variants, but can be classified into 3 main types
• With cashback (e.g. 5-pay-10)
Accumulation Period Payout Period
31. ENDOWMENTS
Bonds Commodities Properties CashStocks
Underlying
• Many variants, but can be classified into 3 main types
• Retirement (e.g. payout at 60, mature at 70)
Accumulation Period Payout Period
32. INVESTMENT PLANS
Bonds Commodities Properties CashStocks
Underlying
• E.g. Blue chip investment plans
• Allows for regular investment of selected stocks using little
amount of money.
• Advantage: may be lower cost than unit trusts
• Disadvantage: may be less diversified than unit trusts
33. Risk Level Liquidity Income Suited for
Medium to
High
Medium to
High
Dividends
(if any)
Trading, Capital
appreciation
Low to
Medium
Low to
Medium
Coupons
Regular fixed
income
Low to High High NIL
Hedge against
inflation
Low to High Low
Rental
(if any)
Hedge against
inflation, rental
income
Low High Interest Liquidity needs
COMPARISON - UNDERLYING
Bonds
Commodities
Properties
Cash
Stocks
34. Risk Level Liquidity Income Suited for
Low to
Medium
High
Dividends
(if any)
Long term
capital growth
Low to
Medium
Medium to
High
Dividends
(if any)
Trading, Capital
appreciation
Low High Interest
Short term
investment
COMPARISON - FUNDS
Unit Trusts
Exchange Traded
Money Market
Funds
35. Risk Level Liquidity Income Suited for
Low to
Medium
Low NIL
Long term
capital growth,
protection at
young age
Low Low
Cashback
(if any)
Capital
guarantees
Depends on
product
Depends on
product
Depends on
product
Depends on
product
COMPARISON - PRODUCTS
ILP
Endowments
Investment
Plans
40. 4 MAINTYPES OF MARKET INVESTORS
Market Timer Long Term
Investor
Fixed Income
Investor
Managed
Portfolio
Investor
41. 4 MAINTYPES OF MARKET INVESTORS
• Market Timer (Trader)
• Try to buy at bottom of market cycle and sell at top of
market cycle
• Difficulties:
• Spotting the top and bottom
• Emotions (greed vs fear)
• When to cut loss when market moves against you
• Typically alternates between stocks and cash
42. 4 MAINTYPES OF MARKET INVESTORS
• Long Term Investor
• Buy fundamentally strong stocks or funds and hold for the
long term
• Catch the general uptrend of the market
• Difficulty:
• Maintaining invested vs taking profit
• Some stocks or funds may never recover
43. 4 MAINTYPES OF MARKET INVESTORS
• Fixed Income Investor
• Buy bonds and hold till maturity, collecting coupons
periodically
• Buy bond funds and hold
• Typically fuss-free and low risk, but may run the risk of
company defaulting
• Popular for retirees
• Difficulty:
• Reinvesting coupons
44. 4 MAINTYPES OF MARKET INVESTORS
• Managed Portfolio Investor
• Typically invested in unit trusts and/or ETFs
• Strategic allocation ratio: e.g. 70% stocks, 30% bonds
• Tactical allocation ratio allows for minor form of market
timing
• Tradeoff: Potential returns are trimmed due to fees
45. GAME PLAY
Moves Modifier Bull Neutral Bear
Stocks
6-sided die
(M)
2-sided die
+5M
+/- M
+M
+/- M
-5M
+/- M
Bonds
3-sided die
(M)
NIL +M +M +3M
Managed
Portfolio (Stocks
heavy)
4-sided die
(M)
NIL +3M +M +M
Managed
Portfolio
(Bonds heavy)
4-sided die
(M)
NIL +M +M +3M
Cash NIL NIL 0 0 0
Buy-and-hold
Stocks
Stocks only
MarketTimer
Can switch between
stocks and cash
Fixed Income
Investor
Bonds only
Managed
Portfolio
Can switch between
MPS and MPB
