How Young Working Adults Can Build an Investment Portfolio to Pay for Major Life Expenses
Let’s face it, in the first year or two of your employment period, the last thing most people think about is how well they’re prepared for their major life expenses. The many uncertainties of life and all that jazz. It’s understandable, the people who are just getting started with their careers are almost always in their early twenties and they (rightly) believe that there’s still plenty of time. While there is still plenty of time, there are undeniable advantages of starting the race early. Any financial expert worth their salt knows the value of time. Warren Buffett famously explained how important it is to save and invest early on. The question remains: how are you going to build an investment portfolio with your limited means as a young working adult? Let’s approach the question and find what we discover in the process.
Lay the Groundwork
Before you start the process of building a solid portfolio, you need to ensure you have a solid foundation to start with. After all, you don’t want your money tied up in investments when you need it for unavoidable expenses. As a necessary first step, ensure that you are clear of all debt that you may own and begin to stockpile enough cash for your very own ‘emergency fund’ to help you prepare for any unforeseen circumstances. After you do the needful with regards to your debt and your savings, you start with the actual ‘investing’.
The $1000 Investment
You need to set aside a thousand dollars to get started with your investment. You can choose amongst the below-listed options based on your preferences in terms of the risk you’re going to be taking. Moreover, you also have the option of going for multiple options to develop a comprehensive, diverse portfolio.
Bonds
Risk Level: Low
Most young adults prefer to safeguard their finances and not risk the money they make. When you opt for a $1000 dollar bond, you’re essentially loaning the government/company the sum for an already defined period of time while you continue to derive dividends in the form of regular interest. You may choose to sell your bond for a profit (or a loss) before the maturity period arrives.
Government bonds are generally low risk, and you can opt for the Singapore Savings Bond for as low as 500 dollars. If you’re looking to invest a thousand dollars, the best options include Singapore Government Securities and Treasury Bills. Refer to the SSB Interest Calculator to understand the extent of return you should be expecting against your investment.
Unit Trusts
Risk Level: Variable
Unit trusts or mutual funds remain an extremely attractive investment option. Because of its relatively lower risk level the flexibility it lends you. Consider the fact that you can opt for a unit trust that suits your eventual objective as per the risk level you’re willing to accept. Another advantage of opting for a unit trust is that you can expect steady profits in the form of regular dividend you’re eligible to whenever there’s an escalation in the price of the unit trust. Another fact of absolute importance that concerns unit trusts is that you would be paying a fair share of fees in the form of mandatory charge sat the time of purchase alongside the yearly maintenance fee associated with your account. This maintenance charge depends on the scale of your investment.
Stocks
There are few things more tempting than investing in the stock market. The extremely volatile stock markets have the potential to fetch you substantial returns if the price of your stocks remains high. On the flip side, if the value of your stock tumbles, you risk incurring a significant loss to your investment. An investment in stocks is always a risky prospect as your profitability is always determined by external factors such as the company’s profitability, prevailing economic conditions, and geopolitics. However, it’s mandatory to purchase a minimum of 100 shares to get started with stock trading in Singapore. In essence, if a company is selling a single share at ten dollars, you’ll need a thousand dollars to buy a hundred of them.
REITs
Risk level: Moderately High
Those who can afford it tend to prefer buying some real estate in order to truly achieve the diversification of their portfolio. However, the reality of the situation remains that young working adults don’t quite have the option of buying a property with property prices as high as these. You still have shot at achieving this diversification if you choose to invest with real estate investment trusts or REITs. Several investors together accumulate a large sum of money for the ownership of the real estate.
Professionals are then hiring for the management of the property to ensure the property generates sufficient revenue. The nature of the property isn’t strictly defined – it can be residential, commercial, or retail. You can generate money through regular dividends to the tune of roughly 5 to 8% of the sum you’ve investing alongside the sum of capital appreciation. In functionality, REITs are similar to general stocks and you must invest a minimum of 100 shares to get starting with your investment portfolio. However, you’re likely to charge with unreasonable brokerage fee if you choose to invest the bare minimum.
In essence, you’re going to need a thousand dollars to be more comprehensive about your foray into the world of investment. Save away! You can save a thousand more dollars to consider a move to other investment options for the construction of a more diverse portfolio. After a year. You’ll be in a position where you’ll be able to determine your preferences as far as risk versus reward goes. Determine your preference, and double down on the same. You certainly won’t be a millionaire by next summer. But, with an early start, you’ll well and truly be on your way to (eventually) be one.
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