investment portfolio singapore

6 Steps to Building an Investment Portfolio in Singapore

Investing can be a great way to grow your wealth and achieve your financial goals, but it can also be overwhelming and confusing, especially for new investors. 

Building a successful investment portfolio in Singapore requires careful planning, evaluation, fund sourcing, monitoring, and attitude modification. A well-defined investment portfolio is necessary to achieve those financial targets.

To help you navigate the investment landscape in Singapore, we have outlined six steps to building a diversified investment portfolio. Read on. 

What is an Investment Portfolio? 

A portfolio investment involves owning stocks, bonds, or other financial assets to earn a return or increase in value. It works as a tailor-made personal investment mix that you can manage according to your investing styles and criteria.

Portfolio investment can be classified into two categories: strategic and tactical. The strategic investment focuses on buying assets with long-term growth potential or income yield, while the tactical approach involves active buying and selling for short-term gains.

How to Build Your Investment Portfolio in 6 Steps

1. Set Investment Objectives and Goals

A task with a good start is halfway to success! Ask yourself 2 critical questions: What are your investment goals? How long it takes to reach them? Clearly defined investment objectives comprising these answers can guide you through a sound investment portfolio.

Investment objectives

You require investment objectives to guide and navigate your investing decisions. The objectives comprise 3 factors:

  • Capital preservation

If principal safety is your priority, you should look for 3 investment tools: government securities, AAA-rated corporate bonds, and bank deposits. 

The government or its agency bonds, such as the Singapore Savings Bond, have the full faith backup of the government. They are the safest investments in the world because the Singapore government has almost zero chance of default.

The next tier is AAA-rated corporate bonds issued by blue chip companies like Microsoft, Apple, and JP Morgan with a track record of financial stability and solid performance. These companies’ high credit ratings make the bonds reliable and trustworthy. 

Bank deposits, guaranteed by the Singapore Deposit Insurance Corporation, protect the capital and offer a commitment to deposit interest so investors are worried free from the loss of their investments. 

But capital safety comes at a price. In return for capital and interest guarantees, these investments produce a lower return than risky products like stocks or mutual funds. What’s more, higher inflation may erode investment gains and even capital in a rising price environment.

  • Income

Retirees or passive-income investors prefer steady fund sources over high-growth investments. Government bonds, corporate fixed securities, or bank deposits become favorites. The tools offer regular and consistent income over a mid-to-long period. 

Investors like them and are less worried about capital safety because issuers have financial strength rated AAA by credit rating agencies. However, people opting for higher income may choose bonds with lower ratings and junk bonds, which offer bondholders higher coupon interests but incur higher default risks.

Besides, preferred shares and high-dividend common stocks also offer other alternatives to investors, but you should mind that stock prices fluctuate due to market volatility.

  • Growth

Capital growth is one of many investors’ primary objectives for investment portfolios. A capital gain exists when an asset price exceeds its cost. Instead of buying physical commodities, which incur various costs, investors choose high-liquidity assets like stocks or exchange-traded funds.

Besides including stocks across industries in your investment portfolio, you can choose to invest in companies of different stages of growth, for example, technology giants like Meta, Google, and Netflix, or mature companies like Walmart or Bank of America. You can also buy companies in multi-growth stages with regular income, like Chevron or Occidental Petroleum.

In addition, you can save time and effort by purchasing ETFs. An ETF is a passively-managed fund tracking an index, for instance, the S&P 500, investing in tons of blue chip companies.

One point to note: investors should know a growth investing strategy involves more risks than a conservative one. Your investment portfolio may undergo more ups and downs in value.

2. Assess Your Risk Profile

You may need to know more about your risk appetite and profile. 2 factors form your overall investment considerations in creating an investment portfolio: risk tolerance and investment horizon.

  • Risk tolerance: You may afford to sacrifice investment loss from market turmoil. However, you will likely win significant capital gains when investments rise in a favorable market. Risk-averse investors may stay in fixed-income markets like government bonds or bank deposits in return for lower returns.
  • Investment horizon: A more extended investment period may motivate an investor to take higher risks for potential growth. An investor with 30 years to retirement may invest in high-tech stocks as he can afford to compensate for the loss in case.

On the contrary, if you have a few years to retire, instead of running the risk of losing all capital in highly volatile stocks, an option for fixed income or bank deposits is a viable choice for a to-be-retiree.

Whatever your risk tolerance, you can still use flexible investment strategies to combine risky and conservative assets to build up your investment portfolio capable of enhancing your return and reducing risks. Sound investment advice from a financial advisor is a good source for achieving your investment goals.

3. Determine Available Funds

The next step is to decide on the funding source for your investment portfolio. Investment takes time, so you must put aside idle funds for growth. Besides investment horizon, you should:

  • Calculate how much you can afford to invest: You should set aside funds for short-term uses and mid-to-long-term needs. The purpose is to determine from near-term investments like certificates of deposit or bank deposits from long-term funds for bond or stock investing. You can maximize your investment results by utilizing money and time.
  • Investment expenses: Costs play a significant part in investment returns. You should choose an investment account with the lowest charges, such as management fees, except for catering for multi-products. Investing in exchange-traded funds(ETFs) is one of the viable investment options if you cannot spare time to comb companies’ financial statements. Besides being a diversified portfolio, an ETF reduces investment risks by investing in companies across industries and markets.
  • Avoid overinvesting: A well-diversified portfolio avoids investing in single investments and reduces loss risks. Besides ETF investments, an investment portfolio with a balanced mix of various asset classes may produce a desired return with reduced risks. You should talk to your financial advisor for professional assistance.

Close-up image of coworkers discussing financial charts at business meeting

4. Build a Diversified Portfolio

Types of investment products

After determining funds, you start to build up a portfolio meeting your investment criteria. A generally well-diversified investment portfolio divides asset classes based on 3 risks: conservative, moderate, and aggressive. 

  • Conservative: A conservative portfolio has 85% of funds in government or quality corporate bonds. The remaining 15% or less invests in stocks to maintain minimum growth.
  • Moderate: The moderate portfolio balances the investments into approximately equal halves by 50% for equities and bonds to secure capital security and keep asset growth as essential as necessary.
  • Aggressive: Focusing on growth, an aggressive portfolio invests around 85% of funds in stocks, while the remaining stays in bonds or cash for liquidity needs.

The guidelines above provide general information for further examination; you should also seek professionals like financial advisors to draft up a tailored-made investment mix.

Balancing investment options

A successful investment portfolio should diversify risks caused by individual investment tools. Overconcentrating on a few stocks or bonds may lead to heavy losses. You can mix or invest in more asset classes with the same risk types to balance the concentration risks. Exchange-traded funds(ETFs) are a good investment option to diversify risks as they cover many stocks or bonds across industries or markets. You may get the same return but reduce risks rather than buy a few stocks only. Investing in appropriate ETFs may help you balance your needs for liquidity, capital safety, and returns.

5. Monitor and Rebalance Your Portfolio

Monitor and adjust your investment portfolio regularly

You should be responsive to changes in the stock market or others and make adjustments as necessary to keep your portfolio’s performance on track. In a rising market, you may apportion more funds into high-growth stocks or ETFs and less into bonds. 

However, in a depressed investment environment where stocks are timid in growth, you may allocate more to money market funds or bond sectors to preserve capital. Vigilance on your investment protects and grows your investment portfolio.

Stay informed on market trends and current affairs

Investment markets are dynamic. Irrespective of whether you are investing in a bond or stock market, you should be alert to market pulses and keep investing information updated. Only through appropriate and fast-paced responses can you make your investments stay ahead.

Trade news, investment climates, and financial and technology changes all impact your investment portfolio performance in the immediate or long term. Staying informed on these trends gives you an edge in the market.

6. Review Attitudes and Habits on Investing

Stick to your investment plan

Warren Buffett, the investing billionaire, says he will hold his favorite investments forever and doesn’t delay more than 1 minute in selling bad assets. Investment takes time. You should adhere to your investment plan to achieve your goals regardless of short-term or cyclical changes in the market, which have little impact on your long-term performance.

No procrastination in investing

No better than now to start investing! Your investments require time to grow, whether it is a 30-year period or a 6-month time. Make time, a common factor for investing, to enhance portfolio value. 

Without time, corporations do not have earnings and cannot pay up dividends and coupon interests to shareholders or creditors. Investors cannot expect potential companies to finance projects and grow businesses. Therefore, you should start investing now to achieve your goals.

Avoid Excessive Leverage on Your Investing

Borrowed money may increase investment returns because it magnifies results, but it can also amplify your losses. Leveraged investing can complicate the investment process. Besides rising interest costs, you must consider the volatile market situation and uncertainty to leverage investing brought by long-term investing.

You should avoid using excessive borrowed funds like credit card debts to reduce potential investment pitfalls.

Read Also: Best Investment in Singapore

Final Thoughts

Building up a successful investment portfolio requires a careful process, such as planning, evaluation, fund sourcing, monitoring, and attitude modification, to attain an objective in a limited time. With these 6 factors and professional advice, you increase your chance of success.

Key takeaways

  • In building a successful investment portfolio, you should set investment objectives and goals.
  • Assess your risk profile and create investment criteria
  • Determine your funds for investment and build up an investment portfolio with appropriate investment tools
  • Regularly monitor and adjust your portfolio
  • Create a correct investing attitude

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