Advise for those with zero financial background

[eyeris_t]

Hello

I do not have any background in finance. Actually really hated business and finance matters when I was younger until i realised that everything pretty much revolves around it lol. I have always avoided business/money matters, until I started working full time.

I have since started to (slowly) read up on finance related matters but pretty much every thing I read sounds very foreign...I only understand up to managing my personal finance.... eg put aside n% for savings, reduce expenses etc + build up emergency funds + getting enough insurance coverage etc first.

I am not good with financial matters (financial jargon, not at all). I would like to seek advise on where I should start, like what should I read up on? what are some things I should know because I feel like I'm looking for a needle in a haystack. Any book recommendations? I do follow a few blogs such as ASSI, SGBB, etc for exposure.

I don't really trust financial Advisors, after all who cares about ur money more than urself?

I should also mention Im a 21yo female. My ultimate goal is financial independence, I do not wish to retire poor. I want to start earlier than my peers and wish to get some advise on how I should go about on my journey. I want to learn how to invest, but I don't intend to do any sort of investment until I understand what I'm getting myself into (which I, so far don't). When I see all the charts and numbers and graphs I also see stars @-@

Thank you!
E.T.

 

[delceer]

You got how much for investment ?
What is your risk appetite ?
Still studying ?

 

[havetheveryfun]

background in finance doesnt really help much when it comes to investing.

sure, more or less it might help, but dont think that you are disadvantaged compared to them.

pretty much the same thing as why you see most "financial consultants" are unable to invest on their own

 

[ELKYme]

Hello Eyeris,
Wow!
Really admire you for wanting to build wealth and thinking about your retirement at the tender age of 21!
I wish I had you’re foresight when I was your age.

 

[ocs_woodlands]

I only did this when I was in my mid 30s, looking back, it's a bit late for such a low hanging fruit.

Put in 20k to your CPF. Transfer all of it to SA & forget about it till 55...

 

[ELKYme]

Hey Eyeris,

Though I’m no guru, this is my humble advice which I’ll be telling my kids when they start work:

1) Spend less than you earn.
2) Never get into debt. Especially big-ticket items like cars. If u can’t pay in cash, don’t buy it. (Only exception is housing.)
3) Create a 4-6 month emergency fund with the bank that your salary is credited into. Participate in their promo where you’ll at least get 2-2.5% interest on it.
4) Buy only term insurance. Critical illness, disability, hospitalisation. (Should be cheap as you’re young)
5) Set an aggressive but achievable age goal to max out CPF special account. (Age 32-35 maybe?)
6)Agressively attack and pay off housing loan.
7) Max out yearly SRS to enjoy paying less tax and invest those funds in a unit trust that have a proven track record.

When u reach retirement age(62), you will have shelter, passive income & a sizable bequest for your loved ones.

 

[maumu]

when I was 21, I already started with the concept of savings. cos I grew up in a poor family.

it is important to manage your spending... so that you always have some savings around. with savings you can then start to take long-term views, depending on your risk appetite. at your age I knew nuts about FDs, SDs, bonds, funds, etc. but only shares.

if I had knew more, I would begin with 'safer' instruments to ensure growth, until you reach a stage where you can afford higher risk and then go into those with higher risks (like shares, etc.).

young: low capital, so should focus on building up your 'war chest'
working adult/30s: go for higher risk instruments due to time horizon (willing to accept loss in short/mid-term)
older/40s: focus on building retirement fund using profits gained previously and savings built up from previous years by going for low risk products that gives you regular dividends (passive income)

my two cents LOL

 

[Toni90]

Hello

I do not have any background in finance. Actually really hated business and finance matters when I was younger until i realised that everything pretty much revolves around it lol. I have always avoided business/money matters, until I started working full time.

I have since started to (slowly) read up on finance related matters but pretty much every thing I read sounds very foreign...I only understand up to managing my personal finance.... eg put aside n% for savings, reduce expenses etc + build up emergency funds + getting enough insurance coverage etc first.

I am not good with financial matters (financial jargon, not at all). I would like to seek advise on where I should start, like what should I read up on? what are some things I should know because I feel like I'm looking for a needle in a haystack. Any book recommendations? I do follow a few blogs such as ASSI, SGBB, etc for exposure.

I don't really trust financial Advisors, after all who cares about ur money more than urself?

I should also mention Im a 21yo female. My ultimate goal is financial independence, I do not wish to retire poor. I want to start earlier than my peers and wish to get some advise on how I should go about on my journey. I want to learn how to invest, but I don't intend to do any sort of investment until I understand what I'm getting myself into (which I, so far don't). When I see all the charts and numbers and graphs I also see stars @-@

Thank you!
E.T.

Find a rich/ high income husband. Law is on your side.

 

[assiak71]

Bogleheads 3 fund portfolio

- Sti etf es3 listed on sgx
- Vwrd listed on london stock exchange (LSE)
- Bonds part - combination of cash, SSB, perhaps the new nikko bond etf

 

[BBCWatcher]

I would tweak this list a bit....

2) Never get into debt. Especially big-ticket items like cars. If u can’t pay in cash, don’t buy it. (Only exception is housing.)

No, that’s not quite right. Avoid high cost debt. Low cost debt is fine, or even better than fine, with a couple caveats. First, housing should still be appropriate. One primary residence is fine, and it shouldn’t be too much to handle — it should be appropriate. Second, there are other possible occasions when low cost debt is recommended. As an example, if you can get a low cost student loan, and if you earn a quality university degree that helps you (or a child) boost future income, that could make perfect sense. Sometimes raising low cost capital is great to help grow a business.

3) Create a 4-6 month emergency fund with the bank that your salary is credited into. Participate in their promo where you’ll at least get 2-2.5% interest on it.

That’s a little off, in two ways. First, it’s best if the total emergency reserve is at least 6 months. (Some more conservative individuals and families like at least 12.) Second, only a couple of those months need be in an ordinary bank account. The rest can be in Singapore Savings Bonds (SSBs), for example.

4) Buy only term insurance. Critical illness, disability, hospitalisation. (Should be cheap as you’re young)

The critical illness is not a priority compared to disability (DII) and medical (an Integrated Shield plan designed for public hospital B1 ward coverage is what I would deem “essential” in the Singapore context; beyond that is non-essential). Term life insurance is essential if you have at least one dependent and cannot self-insure, although most 21 year olds don’t have dependents.

5) Set an aggressive but achievable age goal to max out CPF special account. (Age 32-35 maybe?)

No, in my view the government supported savings vehicles should be prioritized in this order:

(a) Child Development Account (CDA) matching funds, if/when applicable. Collect every dollar of government matching funds as soon as you can.

(b) Medisave top-ups with tax relief, because Medisave can be useful at any/every age, it’s more difficult to squeeze in MA top ups as you advance in your career (due to the CPF Annual Limit), it earns the highest interest rate and qualifies for bonus interest, it acts like life insurance (useful when you have/get your first dependent), compulsory payroll contributions to MA will spill over into the SA once your MA reaches the Basic Healthcare Sum, and a “pegged” MA works really nicely when you approach age 55 and want to use CPF as a high yielding “piggybank.”

(c) Then Special Account top-ups, with tax relief ($7,000 per year for you, and if available/possible $7,000 when you top-up a non-working spouse’s SA, for example).

(d) Then the Supplementary Retirement Scheme (SRS), which gets more interesting when you’re typically in your 40s onward.

6)Agressively attack and pay off housing loan.

No, bad advice. You should NOT accelerate repayment of any low cost debt while it’s low cost. You will be poorer if you do that, maybe much poorer. A 1.9% mortgage in Singapore, for example, is still low cost. You should not accelerate repayment of a loan while you can reliably, prudently earn a higher yield on savings/investment over the medium term and beyond. That’s particularly true when there’s a prepayment penalty — don’t get a mortgage with a prepayment penalty! — but not only then.

A LOT of people don’t understand this basic financial math, and I take the opportunity again to educate people on this point. Make every dollar work to its full, prudent potential.

7) Max out yearly SRS to enjoy paying less tax and invest those funds in a unit trust that have a proven track record.

No, I disagree. Unit trusts are almost never the best way to invest, with the possible exception of the new LionGlobal funds that charge a low (by Singapore standards) 0.5%/year management fee, and only if you buy one of those funds via a zero cost online platform. And a “proven track record” for anything could mean buying something at a high price, which is never a good idea. (“Oh, look! That fund is up 23% over the past year! I think I’ll buy some....” Bad idea. That’s a really great way to pay top dollar for an investment, to look for the biggest gainers then buy those.)

 

[limster]

theres no right or wrong answer when it comes to a decision whether to repay a housing loan.

After buying shares during the last GFC as well as property, the share prices then took off. My property loan was 0.98%+SOR, no lock in period.

Every month I have some income which I can invest/save.

When I looked at the market and STI shooting past 3,000, I certainly did not want to put all my extra income into shares, which GFC fresh on my mind. So loan repayment was clearly the obvious thing to do.

After I repaid most of my housing loan, as they say, the boat came back and the STI went down to 3,000, so at that point, I started buying more and not accelerating my loan repayments.

 

[ELKYme]

Hey BBC,

You’re right on most points Sir.

I certainly would not have the ability and knowledge to advice a learned and seasoned investor like you. (Already learned a lot from u)

My suggestions were meant for a young and passionate person that wants to plan for a comfortable retirement without much knowledge nor interest in finance stuff.

Had the good intention of inculcating good habits that is simple to understand and time-tested to work without the need to know a lot about financial instruments Sir.

1) Spending within one’s means.
2) Importance of saving. (Earlier the better so that the magic of compounding can take its course)
3) Remain debt-free.
4) Create wealth. (Without the need for learning complicated financial stuff)

Cheers.

 

[unhinged_loon]

https://forums.hardwarezone.com.sg/...*-shiny-things-club-part-2-a-5813566-145.html

 

[goldnut]

I throw everything into a robo

 

[BBCWatcher]

theres no right or wrong answer when it comes to a decision whether to repay a housing loan.

No, actually there can be a very wrong answer.

Let's suppose you have $1,000 (extra) in your hand, and you're trying to decide whether to make an extra mortgage payment on a 1.8% mortgage, or to deposit it in a Singapore Savings Bond that's government guaranteed to pay a higher interest rate at least from the second year, and to keep paying progressively higher interest over the 10 year life of the bond. GOVERNMENT GUARANTEED to do that.

Why would you ever pay down 1.8% faster in that situation? You shouldn't -- it's not rational. The government guaranteed deal is better, clearly. You can keep paying your mortgage, on time and on schedule, and with 1.8% interest accrual -- and pocket the extra interest your SSB yields. You win!

....Or you lose if you repay your mortgage any quicker than it needs to be repaid, at this interest rate. And I'm just using SSBs as an example of something stone cold simple you could do. If you can reliably, prudently do better than SSBs -- and you can -- then you win even more.

No, this doesn't make "sense." Why is the government willing to pay you a higher return than the cost of your mortgage? That's weird, but it's what we have in Singapore at the moment. And you can thank all the grandmothers parking gobs of Singapore dollars in low interest rate bank deposits, and you can thank all the people who accelerate repayment on mortgages (and often with penalties) because they think low cost debt is scary. But now you know: don't do this. While low cost debt is still low cost, and while your dollars can work harder for you elsewhere, go make yourself wealthier. If mortgage interest rates ever rise such that this comparison flips, no problem, you then accelerate repayment of your mortgage -- AND you're that much wealthier (from your previously higher yielding savings) and able to retire the mortgage.

Sorry, this is a simple case with only one correct answer. If low cost debt is genuinely low cost relative to alternative savings yields for your dollars -- my gosh, SSBs are beating mortgage rates from year 2 onward! -- don't accelerate repayment.

 

[BBCWatcher]

3) Remain debt-free.

No, I emphatically disagree with that as a generalization.

Sample Scenario: You child is accepted for admission to Harvard University, you receive a generous need-based financial package, and as part of that package your child would incur US$2,000/year (US$8,000 total) of student loan debt with 0% interest until 6 months after graduation (or after graduate school), then 6%/year interest thereafter.

But your ironclad rule is to remain debt free, so, on your guidance, your child turns down that offer and decides not to attend Harvard. Right? Wrong, way wrong!

The richest, wealthiest people in the world borrow money on occasion -- if/when it's a good deal. Apple, the most valuable publicly traded company in the world, has approximately one quarter trillion U.S. dollars in cash, and Apple borrows some money. Debt is a tool, and that tool has legitimate, appropriate uses. You evaluate loans on their individual merits: is a particular loan low cost, are you confident you can pay it off on schedule (and even if interest rates rise if the loan is adjustable), and does it help you invest in a prudent, responsible way with a high assurance of great or better returns? If the loan makes sense in those dimensions, then go right ahead and borrow. The scenario outlined above is one such example, with crystal clarity.

 

[BBCWatcher]

By the way, what happens if the mortgage interest rate goes down? Well, if you used spare dollars to accelerate repayment on your already low cost mortgage that got even lower cost, when you could have locked in a much higher SSB interest rate (simple baseline example), congratulations, you lost even more opportunity for greater wealth. Not smart!

No, you really, really do not want to accelerate repayment of cheap loans while they're cheap. Especially in Singapore with so many people carrying Ordinary Account balances earning 2.5% who are extremely well defended on their mortgage servicing. That's not everybody, but that's many people.

I will allow one exception here. There are some people who are constitutionally incapable of saving, who have absolutely no self control, and who will not deposit and keep their spare dollars in reasonable, prudent, age and risk appropriate saving/investment vehicles -- or even in SSBs. They'll spend them, and not on important things like life-or-death cancer surgery in public hospital C ward but on a few rounds of blackjack at the casino. If that's you, then maybe the best remaining choice you have is to accelerate repayment of your low cost mortgage, because that's the only way you can "force" yourself to save anything, even if it's a lousy return on your savings.

In Singapore, if this is a mortgage on a rental property (or could be rented out in the future), another reason why you don't want to accelerate repayment on a cheap mortgage is because mortgage interest is factored into the income tax calculation to determine your net taxable rental income. If you accelerate repayment on that mortgage, then you end up raising your income tax. Ooops! And you don't even get to count any prepayment penalties as a deductible expense, so that's not good either.

 

[ELKYme]

Hey BBC,

No doubt, It’s wrong mathematically to pay off the housing loan when a higher interest can be gained by having the funds in SSB that has an advantageous spread.

The downside is that it gives us the message that it’s ‘alright’ to be in debt...so long it’s “good debt”. Unfortunately, many of us(myself included) has done many stupid things with money.

An example is that when the SSB matures, I’ll use the funds to purchase the latest iPhone max or worse still, use it as a downpayment for a brand new E-class! This is a known human weakness.

Casinos are giving us ‘free chips’, banks are giving us ‘interest-free’ 6 month loans to exploit this weakness.

With all due respect and no offence, I’ve never heard of any millionaire making their money by leveraging on interest spreads. (Not paying off debt and using it to invest in a slightly higher yielding financial vehicle). Unfortunately, I do come across quite a number of guys still paying housing loans after 55.

 

[BBCWatcher]

With all due respect and no offence, I’ve never heard of any millionaire making their money by leveraging on interest spreads. (Not paying off debt and using it to invest in a slightly higher yielding financial vehicle). Unfortunately, I do come across quite a number of guys still paying housing loans after 55.

Oh, I have. Certainly billionaires do, but most Singaporeans of more modest means are doing this. It's the classic middle class formula, actually -- a low cost mortgage on a reasonable sized home, doing a good job at work, diligent savings (in CPF and otherwise), reasonable spending on day-to-day needs, and...decent or better wealth creation.

I've done it a few times. My student loan was an incredible deal, and I've had a couple vehicle loans that were excellent deals -- those are the ones that come to mind. All paid in full, on time every time but no faster. And I'm that much wealthier as a result.

Yes, my one exception is if your alternative landing place for spare dollars is even worse than accelerating repayment on a cheap loan, then OK, that's the one exception. If you're reckless and cannot control yourself, then OK, maybe that's the best you can do.

 

[Hot_Dog]

Learn to live within your means and save. As for the why only you can answer that.