She began with her first paycheque

She began with her first paycheque


The best time to start planting your money tree is when you start working Christie Loh


Weekend • March 8, 2008




YOU’VE just thrown off the shackles of school, ready to take on working life as a young woman in her 20s. When the paycheque comes in, what’s your first thought? Treat mum and dad to a nice meal perhaps. Or buy yourself new heels. Or put down the deposit for a year’s yoga classes and even save a little.


The last thing on your mind, probably, is setting aside money for investing. There’s too little left of each month’s salary for that, you say?


Maybe not.


Contrary to a widely-held belief that one must have a lot of “spare cash” before investing, financial advisers say a little can go a long way.


“Never underestimate the power of compounding, which Albert Einstein referred to as the eighth wonder of the world,” said ipac Financial Planning’s vice-president Marion Chin. (See table).


Compounding is when interest is accrued to both the original sum and the interest earned from that sum. It is the key reason why building up financial independence at an early stage is crucial — especially so for women, as they tend to live longer than men, and family needs often cause them to suspend midway or give up their careers.


Serene Goh, 23, is already sowing the seeds of her money tree.


Shortly after graduating in international development studies from Brown University, United States, in May 2006, she landed a job paying $3,000 a month in the back-office of a foreign bank here.


After working for three months, she ploughed $6,000 of her savings into two investment funds: One is a basket of stocks of China and India companies; the other invests in commodities. Curious about the stock market, she spent another $1,000 on buying a penny stock.


Such young women, who try to make their money work, are not uncommon.


According to a survey conducted last month and commissioned by Weekend Today, 55 per cent of Singapore women aged 25 to 34 — the youngest age group polled — invest.


Many are probably working in the financial industry, said Fundsupermart’s research manager Mah Ching Cheng.


But the proportion who invest is expected to rise in general and increasingly include females from non-financial sectors. That has been the trend in recent years.


Data from Fundsupermart, an online distributor of unit trusts, shows that its percentage of women investors has risen over seven years to 34.8 per cent from 27.2 per cent in 2001.


With investor education and information sources expanding, there is a growing awareness of one’s financial status compared to others, said Ms Chin.


Success stories were a big factor behind Serene investing. “When I look at the older people around me, those who are doing okay are the ones who invested in stocks or financial setups like houses,” she said. “I thought if I didn’t invest, I wouldn’t have enough money.”


Fears of inflation eroding any gains further convinced her that savings alone would not suffice.


Just compare last year’s inflation rate of 2.1 per cent with the current deposit interest rate of 0.25 per cent. This year, inflation is expected to average 4.5 to 5.5 per cent and the banks aren’t expected to be more generous.


Future needs are another motivation for investing. Wedding expenses, for instance, usually come to $40,000 to $50,000 per couple, said Ms Chin. With an investment in place, one could take out part of the sum instead of relying solely on savings, she added.


So, how does a young woman with little capital get started?


Serene had the advantage of savings accumulated from schooling days, but not everyone does.


For women beginning from near-zero base, diligently put aside a portion of your salary every month so you have at least three months’ salary as emergency cash, said Ms Chin. Then, you can start building up a pot of money for investing. (Note: From April, new rules state that you cannot use the first $20,000 in your CPF Ordinary account for investment purposes.)


It could take some time before you amass a sizeable amount, which varies according to the investment route you take. But come action time, you can choose from shares, unit trusts, real estate investment trusts, bonds, warrants, exchange-traded funds, currencies, gold and the list goes on.


With $1,000, said Ms Mah, you can buy into a unit trust — preferably one that is a global equity fund.


Ms Chin, however, recommends a more diversified, “multi-manager” approach, where a single investment fund is managed by specialist managers who spread the money across asset classes, countries, sectors and investment styles.


“The overwhelming advantage of owning diversification is to produce reliable returns over a longer time with less volatility,” she explained.


Ultimately, what you pick depends on your financial goals and risk appetite. Ms Chin said investors should be specific about what they want to achieve.


Say “I want to achieve a return of 5 per cent in five years” instead of something vague like “I want to make as much money as possible”.


In Serene’s case, her aim was to earn more than the 0.25-per-cent interest rate for bank deposits. So far, her China-India fund and commodities fund have yielded 10 per cent and 5 per cent respectively.


But she burnt her fingers dabbling in the stock market. The price of the engineering stock she bought plunged from 80 cents to around 30 cents within a year, incurring a paper loss of $625.


“It taught me that I have to research,” said Serene, who had bought the penny stock for somewhat emotional reasons. Her optimism about the company’s prospects was sparked by a post-university internship that gave her a chance to work with the management. Unfortunately, last year saw a bull market suddenly turn bearish and gains of financial markets were largely wiped out in the final months.


Still, Serene is hanging on to the stock, hoping for a recovery over time. Her nerves are also less jittery since she was prepared from the get-go to lose some money on her maiden stock-market play.


Some comfort Serene can take is this: A person in her 20s is able to go through cycles of bull and bear runs, so, her likelihood of recovering from a downturn is higher than a person in mid-career with more financial commitments and fewer years towards retirement, said Ms Mah.


But, of course, added Ms Mah, “don’t invest mindlessly”.


Source: TodayOnline


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