I got another email from a newbie investor, asking a question that I have probably answered my friends many times. How to start investing in Singapore stocks or stocks in general, with a small capital?
This question is always thrown up because many people don’t see the point of investing with a small capital and often struggle with the question of – is it even worth the hassle?
Let me tell you WHY you SHOULD start with a small capital and HOW you should start with a small capital.
How to get started with investing with small capital
Hi there! I was browsing through some articles on investment and
chanced upon this blogpost:
I think those were really great advice to the person. I am just
starting to learn about investing (really at the beginner stage, still
researching and no action done yet). I am wondering how/where to start
if i currently only have a small sum of money for investment? e.g.
SGD3500 – SGD5000. In fact, I don’t know whether I should start or
wait to accumulate more money for investment then start. I’m 28 this
year 🙁 so I’m not sure if I should still wait. Additionally, when I
attended a seminar held by SIAS in May, the speakers mentioned that
for beginners, can start with buying STI-ETF. so I’m wondering whether
i should just use my small capital to buy all STI-ETF first. then
slowly save more money and start to buy stocks. Any advice would be
appreciated! Thank you!
Why You should Start Investing with a Small Capital
Please don’t save up till you have a big chunk of money then dump it into the stock market. No, no, no. Please don’t ever do that.
When I gave one of my students my skateboard, I told him this, “Try not to fall too badly.”
Student: “Wah lau don’t curse me leh!”
Me: “Confirm fall down one. The possibility is too high.”
Investing in stocks for the first time is like skateboarding or riding a bicycle at the start.
You will fall.
You will lose money.
Hope I didn’t scare you there. Haha! Even Warren Buffet lost money when he bought an airline stock. The chances of losing money investing is very high at the start – due to lousy research or bad decision-making or panic-selling ( yes, yes I know you promised not to panic sell but at the start, the chances of that happening are very high).
So now that you know that the possibility of losing money at the start is very high… do you still want to save MORE money first then start investing?
No Way Man!
Keep it small! You can buy stocks with 1k-2k, doesn’t matter. At the start, you are uncertain about your investment thesis or decision-making skills. The main risk is your lack of experience. Taking into account the risk of being a newbie, all the more reasons you should only invest a small amount. Will you give an inexperienced fund manager $100k of your savings to invest? No way!
Investing with a Small Capital Eliminates Fear
We all know the stock market can fluctuate up or down based on sentiment. Stocks are always volatile by nature. Don’t cry when you see your XYZ stock suddenly plunge 25% in one day for some stupid reason like Bf Gf blogger releases report of XYZ company misappropriating funds.
As a newbie, you can get very excited when you see the price rise. Likewise, you will feel scared when your stock price starts plunging deep into the red. By investing with a small capital, you won’t feel bothered by the temporary losses and you are less likely to sell on panic. Even now, I still invest small sums into stocks that I like, but are not too certain about.
A small amount invested acts like a tracer bullet. Fire one shot first, follow the company over time; if it continues giving you confidence, fire more shots at it.
If you feel fearful when the stock goes up or down, then you may have invested too much.
Any decisions made based on fear will result in losses.
After all, you can always add on to your stock picks when you have more money or when you become wiser.
BTW, for my first stock, I started with 5k and proceeded to lose $500 in two weeks after macroeconomics spook me out. Then, I bought Cache Logistics with 2k, and subsequently added more to it until I exited with 14k of capital over 2-3 years. I also bought into Roxy Pacific twice till it amounted to 13k total and exited with 26k total. 26k + 14k = 40k. I took the 36k to buy Jardine and you can read the rest of the story here. (But don’t follow the Jardine trade, it was a questionable decision that just ended up being profitable. I am just using this to show you not to underestimate the power of ‘small capital’.)
Should you buy STI ETF?
What’s your strategy? When I first started, I didn’t have a clear strategy. I just bought and sold on a whim. That cost me greatly.
Usually, people buy an index just to dollar-cost-average into it and not bother about the stocks too much. I don’t buy indexes because I want to beat market returns.
Again, there is no right or wrong. Investing is a personal decision. Don’t let experts tell you what to buy. You must decide for yourself as every person’s views or decision-making processes or financial situation is different. But to help you with that decision, let me ask you these questions.
– Why not buy a stock?
– What’s your reason for buying STI ETF?
– If you buy STI ETF, then what are you going to buy next? ( If you buy STI etf and proceed to buy stocks that make up the STI, then you are not diversifying ! Sounds obvious but I say it just in case!)
Continue Building your Knowledge
Don’t ever stop learning. Continue reading books or joining investing courses. Invest in yourself. Invest in Money-making skills.
Most of the financial bloggers in Singapore prefer an Income-investing approach and I can see why.
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