How Investing Works

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When you invest, you’re giving your money the chance to work for you and your future goals. It’s more complicated than direct depositing some of your paycheck into a savings account, but every saver can become an investor. We have 3 rules you can follow.

What is Investing?

Investing is a way to potentially increase the amount of money you have. The goal is to buy investments, and hopefully sell them at a higher price than what you initially paid. 

The differences between saving and investing are:

  • You typically save money in a traditional bank account or by simply storing it someplace safe. When you invest, you’re purchasing products and keeping your money in a specified investment account.
  • When saving, your opportunity for growth is lower, and might not exist at all. Investing helps you beat inflation—through interest earned—ensuring your money’s purchasing power stays strong.
  • Saving is usually reserved for short- and intermediate-term goals, whereas investing is better suited for long-term goals like retirement.

3 investing rules

You’re probably thinking, “I’d love to see my money grow. How can I get started investing” The 3 rules below can help you form a solid investment plan.

1. Start investing as soon as you can.
The more time your money has to work for you, the more opportunity it’ll have for growth. That’s why it’s important to start investing as early as possible. 

2. Try to stay invested for as long as you can.
When you stay invested and don’t move in and out of the markets, you could earn money on top of the money you’ve already earned. That’s called compounding returns, and it could mean more money for retirement.

3. Spread out your investments to manage risk.
Putting all your money in one investment is risky—you could lose money if that investment falls in value. But if you diversify your money across multiple investments, you can lower the risk of losing money.

Start early, stay long

One important investing strategy is to start sooner and stay invested longer, even if you start with a smaller amount than you hope to invest in the future. This allows compounding to really work. Compounding happens when earnings from either capital gains or interest are reinvested—generating additional earnings over time.

Even if it’s early on in your career and you only have a small amount to invest, it could be worth it. The power of time has potential to work for itself—the money you do invest (even if it’s only a little) will compound for as long as you keep it invested.

Diversify your investments to reduce risk

You typically can’t invest without some risk. However, there are ways to manage risk in your investment portfolio. 

The simplest way is through: 

  • Diversification – meaning you spread your money across multiple different types of investments—you can help reduce the risk of losing money. One investment may suffer a loss of value, but those losses can be made up for by gains in others.
  • Asset allocation – involves dividing your investment portfolio among different asset categories—like stocks, bonds, and cash. A simple way to spread your investments among different asset classes is to invest your money in unit trust funds and exchange-traded funds (ETFs),  Both products typically have a large number of stocks and other investments within the fund, making them more diversified than a single stock.

Investing is something you can start doing today, tomorrow or when you feel ready. Most often, it works by using the power of compounding to increase the value of your money over a period of time—this may impact your money’s purchasing power in the future and help you be more financially secure in retirement.

Ready to get started? 

You can start today without using cash with EPF i-Invest. Utilising the money in your EPF account 1, you can start to make informed investments regarding unit trust funds to potentially maximise your retirement savings. Go here to get started online.