Why investing is like learning to ride a bicycle | EP 11

Many of you have said you want to invest but don't know how you've given us positive feedback on our first episode on the importance of investing. But we've also got questions about how to go about it. The golden rule is don't do anything you don't understand. So we've brought back David, co co founder of the smart investor. To help you understand how you should put your money to work for those of you guys who haven't heard our last chat with David, it is the first episode of this podcast.

Go check it out. It talks about why we need to invest. But David, could you give us a brief recap of why we have to start thinking and planning for our retirement and not leave it to chance? Well, I think the sooner you invest, the sooner you start thinking about what is going to happen on that day when you are no longer working It is vital. And for some people, that period of time could be 30 or 40 years and for other

people it could be relatively shorter. The problem is if the time that you have to start investing starts to shorten, it really means that you need to take greater risks with your money and nobody wants to take a great

amount of risk. So the simple rule is, you need to know where you are today, how much money you have available to you today And what you think you will need on that day when you are no longer working and will you be able to enjoy the same lifestyle on retirement day plus one compared to retirement day -1? And what you don't want to do is to see a drastic drop in your standard of living and having to make major cutbacks simply because you no longer have

a salary. So the important thing is to know where you are now, where you want to be on that day and how you are going to get there. And of course as with most things Sarah, if you are going on a journey, if you leave early, then of course you're not going to be pressured because you are worried you're not going to get to your destination on time. Just like today coming in to do this podcast with you. I left home early and so therefore I arrived 15 minutes early and that

is a nice situation to be in. What you don't want to do is to be in the back of a car, telling the driver can you go faster faster please Because I have an interview at 10 30 he goes, well it's already 10 20 now. How much faster do you want me to go? And I think that really is the secret. The earlier you start, the more comfortable will be your journey. If this is all too overwhelming. David for some of our listeners, should they get an advisor to help them

with investments? I'm talking about a human advisor, a person there who they can talk to, they can sit with. Is there any value in getting an advisor when technically you can do it yourself. Right. There is this wonderful thing at the moment that came about in the year 2000 Sarah. It's called the Internet and what it allows you to do is to look for free at the different kinds of experts, advice on what to do with your money. But then I must urge people trust but verify in other words, there's no

reason why you shouldn't trust what a person says. But verify that that person hasn't got a hidden agenda right? There is no ulterior motive that they're not trying to make money out of you. So it is a learning process investing is simple. That rule of 100 is a good place to start. It's been around for centuries. So the rule of 100 just to recap states that you take your age minus 100. And that is the percentage of your investments you should

have in stocks and shares. So on day one you are zero age, you should have 100% of your investments in the stock market As you get older then you should have less and less in the stock market and increasingly more in bonds. And by the time you get to 60, what you should be having is 40% in the stock market, 60% in bonds. It has stood the test of time and what it really says is that you should be investing your money in the stock market and you should be

picking good companies. And here in Singapore we have this wonderful. organization called and we also have another wonderful organization called SGX that aims to make sure that whatever investments we choose, that they are properly regulated and they ensure that there is nobody out there who is going to be cheating you. So everything is well audited, everything is well regulated and the same for which I cannot say about other jurisdictions where they tend

to fly by night in some ways. But here in Singapore, we can trust that both M. A S and S. G. X. And the other regulators are looking very closely at companies that are listed on the stock market that they're not there to cheat people and if they are cheating people, you can guarantee that they will be delisted and they

will have their knuckles rapped. So what can you do should you go to an advisor, you can talk to your bank, listen to what they have to say and then talk to someone else and listen to what they have to say and make your own mind up afterwards. But I have always believed in managing my own finances, luckily I work in an industry where I can do that and I've been able to advise my own two Children about where they

should be putting their money and thankfully for them. I don't charge them for my advice, but I just guide them in the right direction. And the most fascinating things there is that they know what the answer is. They know what the answer is even before I tell them and all I simply do is to give them that additional level of confidence that what they're doing is the right thing. And I think most of us know what we need to do.

We mustn't listen to people who tell us, oh, go buy this share because I made 20% on this last week. So you go in and buy why is he telling you this right? Why would he want to tell you something like that? Ask yourself that question. And one of the things I've always learned is to ask the question why? All the time, Every time somebody says something I say, why

and then eventually you will get to the truth. And the answer is because I want to make money from you right so never trust anybody, never take anything at face value and trust your gut because it is telling you things, what we're living in now is a very uncertain environment, inflation is rising, there is a lot of uncertainty in the market And this uncertainty started in about probably more 2008 than 2000 when huge amounts of money was pumped into the

global economy. And what we're seeing now is money being withdrawn from the global economy. And so Warren Buffett once said when the tide goes out we'll know who's been swimming naked and as awful as that analogy is and it paints a really bad picture.

But what really means is that people have been putting their money into certain investments that have been excessively risky and as that money comes out then what we're going to see is who is swimming naked and there will be lots of companies that will be exposed for being overly risky. We're already seeing that in cryptocurrencies and N. F. T. S. What about robo advisors, David? Is there a case for that?

I think there is a case and I think there is certainly a case for making investing as simple as possible. But what robo advisors tend to do is they will just try and assess your risk profile and they will say oh David is less risk averse than Sarah. And so therefore the investments that the robo advisor will be trying to put you into our less risky investments. In the case of David, wow my goodness, this guy is off the scale in terms

of his risk profile. So we can afford to put him into more risky investments because he doesn't really care right. So let's take him into NASDAQ. Let's take him into emerging markets because he can't tolerate that risk. But in the case of Sarah she is far more sensible, more scared. Well call it call it sensible and she doesn't really want to lose as much of her money. So let's recommend for her slightly less risky investment And let's recommend for her more bonds.

That kind of stuff. You can buy E. T. F. In bonds. Let's put her into those and we're less likely to scare her completely witless as a result of her investment. But in the case of David, well if we give him bonds, he's going to snooze, he's going to go to sleep so he's not going to be that engage. So there's nothing wrong with robo advisors. And what I can say is that your risk profile will change over time as you become more comfortable with your investment. You will want to take

on more risk. It's just a fact of nature. So you could start with robo advisors and just see how they do things and once you've learned how to do it then you don't need them anymore. You can go and do it yourself. Hi, my name is steve Lie and I'm Teresa Tang and we are the hosts of the new podcast CNN correspondent from new york to Bangkok, join us as we kick back and chat with our colleagues across the globe

about the latest news developments. Look out for our weekly episodes wherever you get your podcasts. If you want to start investing yourself, Exchange traded funds are usually a popular place to start and the first step is really by going to a brokerage. Right? Absolutely, yeah. In the case of the E. T. F. It behaves like a share, it is traded like a share. And so therefore you need a brokerage in order to buy the exchange traded fund.

So you need to go out and find yourself a reliable broker and there are so many here in Singapore and they will open your account for you. The account opening process these days is a lot easier than 10 years ago when I first came to Singapore. The process I would say is very streamlined now and many of the brokers here will be able to open an account for you. What you need to watch. However, is the kind of fees that the broker will charge you and it does vary from one brokerage to another.

And the beauty of opening the brokerage account is you can first of all start investing in the E. T. F. Then as you get a little bit braver, then you can start saying already have the E. T. F. Why don't I add a few more shares to my investment? And it is a bit like when you're riding a bicycle, when I first learned how to ride a bicycle, you had two stabilizer wheels behind you that helped you to ride. And then as you get braver, you take the stabilizers off.

And that very much is the analogy with investing with exchange traded funds. And what would you say to those who are comfortable in investing in E. T. F. S. Or stocks, but are thinking twice about letting go of their money to brokerages? Like how do you pick a reliable and safe broker? Well, there are two issues there, Sarah. The first one is, is your money safe? And what you need to remember is if you put your money in with a brokerage, that money is ring fenced,

it doesn't belong to the brokerage. So it's a bit like if you went and opened a trading account with dbs, the trading arm of dbs is called dbs Vickers and that is a separate entity to dbs itself. But the money that you put into dbs Vickers is ring fenced. If heaven forbid the brokerage were to go bust your money is separate, right? Your money is completely separated from the entity itself. So anything could happen to the brokerage. But your money is hypothesis stated in other words, is ring

fenced and that is protected. So therefore you probably have more protection with the money that you have in shares than you would with your money in the bank because a lot of people may not know this, but there is a bank guarantee that only guarantees the amount of deposit you have with them to a certain limit. But in the case of shares, it is unlimited. So you could have a million dollars

in shares, but those shares belong to you, right? And with these brokerages, is it possible to use your CPF money to invest? It really depends on the broker itself, there are preferred brokers from CPF, you'll have to sign certain forms because what they're doing is they're accessing your CPF money and so they need to be registered to access your CPF funds and then just carry on do

what you do. So then you can start investing your CPF money, there is only a certain amount that you can invest in your CPF of your CPF money and there are only certain shares that you can invest with your CPF money. So what the Central provident Fund wants to do is to protect you in some way and say, don't just run off with all your CPF funds and go and buy penny stocks with it because then you'll end up with nothing.

So they have a preferred list of shares that they have vetted and going back to your other point, check with your broker, if you can use your CPF funds,

not all brokers can use your CPF money. What about taxes, do we need to pay taxes in any money that we make in these investments, particularly the ones we make here in Singapore and any US listed stocks, for example, because those are quite popular nowadays, if you buy and own Singapore stocks, there is no tax on dividends, there is no tax on the capital that you make, so no capital gains tax

At the moment. Singapore has the rule that there is no dividend tax and there is no capital gains tax, so you don't have to worry about taxes here in Singapore. Unfortunately if you buy shares in other jurisdictions, then there may be withholding tax and in the case of the US there is a 30% withholding tax on dividends paid, but there is no capital gains tax. So each jurisdiction is different

in Hong kong. If you buy Hong kong listed shares, there is no tax, but if you buy chinese companies that are listed in Hong kong, there is a withholding tax on dividends and if you buy japanese shares that are listed in Hong kong, there is a withholding tax, so it is different for different jurisdictions. If you buy Malaysian shares, there is no capital gain tax, but if you own reits in Malaysia, there is withholding tax on the income portion of the distributions that

they pay. So there are different rules for different jurisdictions, but if you stick to the simple Singapore stocks, no tax on dividends, no capital gains tax unless you buy through a company, then it's different rules altogether. But for individuals keep it simple by Singapore stocks and then you don't have to pay tax on any money you make and you don't have to pay tax on any income

that you earn from dividends. Some people get caught up in the fees, get caught up in possible taxes in overseas listed instruments. How do you ensure that you don't lose out on having to pay all these fees in the end, after all the gains that you have? Well, unfortunately if there are taxes on dividends, then the taxes will already be deducted before it is actually paid to you here in Singapore.

So if I was buying shares in Microsoft or Apple or one of those companies and they pay a dividend, The US government will already deduct the 30% withholding tax. And then what remains is then credited to your account over here. So if taxes already taken care of, so you don't have to worry too much about that. But you talk about fees and you talk about charges, there is one thing that investors should be aware of when they are using a brokerage, which is the kind of information that the

broker is able to give you. What I'm talking about is the data that is available. Data is a very precious commodity. And different brokerages will give you a certain level of data. And I'm not talking about trading data, I'm talking about financial data on the companies that you are interested in. You want to know how the company has performed financially, has it been making profits? And those kind of things are probably more important to me as an investor than

it is to a trader. A trader just wants to see the price chart and how it's going up, how it's going down. But in my case, I want to have a look at the history of the company. I want to go back as far as possible and say, how did this company perform in terms of its profit performance? What is this balance sheet look like? And different brokers will have different levels of regularity in

terms of the information that they give you. So what you're paying for in certain cases is that data, that information that is available and how you go about analyzing the company. Thank you so much David for giving us insights into how to go about starting our investment journey and where to go really to start buying and putting our money into investments. Thanks for your time. You're welcome and start today. Yes, thanks.

We hope you enjoyed this episode of money talks the team behind this podcast is Jacqueline chan Joanne chan Danieli and Christina robert. You've got a refreshed slate of audio material you can listen to on your commute or your workout, go to the c. N. A website or app, look for the listen button and subscribe to the podcast you like. If you have thoughts, ideas or even Sawyer's you'd like to share. Please write to us. The details are in

our episode notes. Until next time. This is Sarah al Khaldi.