Stock Investing in Singapore: A Definitive Guide [2021]
Singapore Financial Planners Log

Complete Guide to Investing in Shares in Singapore

investing shares stocks singapore

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Table of Contents

Table of Contents

Are you new to stock investments or confused about how to invest in stocks?

Here’s our guide to help you through stock investing in Singapore.

What are stocks/shares?

Stocks are also called equities, which is the ownership of a company’s assets. This ownership means that they (the stockholder) get to own a select portion of the company’s gains, assets, and votes.

Almost every company in the world has one or more than one owner. And when we say ‘company,’ it doesn’t mean only multinational or high-end companies; even boutiques, restaurants, hotels, etc., are companies and can feature joint ownership.

For example, if you and a friend open a restaurant together, you may take 50% ownership while your friend takes the other 50%.

Thus, when the restaurant makes profits, you get 50% of it, and even the rest of the restaurant’s assets get shared in the same way.

Similarly, companies create shares of their various assets, which people can buy and hold. Whenever profits arrive, the shareholders also gain their share of benefits.

This sale and purchase of stocks are made in the intangible ‘stock market’. Companies create and sell shares to increase capital, and the public can buy shares for their own profitable needs.

Before you can buy shares of a company, the management must list the company on the stock exchange.

And before a company can be listed, they need to go through an Initial Public Offering (IPO) – which just means that they’re selling the initial batch of shares to the public to raise capital.

Such a process makes the company public and not private. In short, when you invest in a company’s stock, you own that share of the company in the stock market.

So this is a simple way to understand what stocks are.

How does Investing in Stocks Work?

Now that you understand what stocks are, the question arises regarding how stock investments work.

To start, imagine that a new shoe company launches in the market. After several years in business, they realise that they will need a lot of money to take their business to the next level.

They can either privately sell the company shares (known as private equities) or try to get listed in the stock exchange. For simplicity purposes, this post will talk about public stocks.

So the next move is to try and file for an IPO.

The company approaches big investors, and if they (the investors) think the company is profitable, they sponsor it and become the investors for the company’s Initial Public Offering (IPO).

Through this investment, the company gets launched officially onto the public market, and now, any other company or person interested may buy the company’s stocks.

This purchase makes the investors (you) own the company partially (depending on the number of shares they buy).

How do you earn from investing in stocks?

Capital Gains

As the money from the IPO helps the company grow, and once it gains more profits, more investors may be interested in having a share and begin buying more stocks.

In the stock market, higher demand with a limited supply will drive the cost of stocks up. The shoe company gains more value, and the price of each share increases.

The people who bought shares before start earning through capital gains from their shares.

And if an investor fears that their stock value of the company will decline, they can sell these stocks for a profit before losing its value.

Once demand goes down, the stock price also goes down, leading to a loss of market value for the company (and investors).

In short, if you invest in a company by buying its stocks, the ever-changing graphs of supply and demand in the stock market will determine whether you profit from the company or face losses.

This process is how big companies like Facebook or Apple grew over the years and increased their total value.

Dividends

As a shareholder, you receive profits of the company from your share in the form of dividends. Dividends are a portion of the company’s profits that are distributed to its shareholders.

For example, if a company has 100 shares and you own 10% of those shares, you will receive your dividends based on that 10%.

But sometimes, the company may have too little of a profit to give out as dividends, and at such times, you will not receive any benefits apart from the value of the stock you own.

Usually, there are three main types of investors: growth investors/traders, Value Investors, and Passive Investors. If you’re looking to earn from dividends, you would generally be categorised as a passive investor.

Otherwise, those looking to earn from capital gains are considered growth and value investors.

What are the different types of stocks?

Common Stocks vs Preferred Stocks

The most frequent types of stocks are common stocks (or ordinary shares) and preferred stocks. While preferred shares often have a fixed dividend, ordinary shares might or might not get any.

Also, preferred stockholders get entirely paid for dividends even before common stockholders get a taste of it.

However, the “downside” to preferred shares is that they do not get any voting rights. Voting rights are essentially the right to vote and have a say in the company’s overall direction.

Depending on the type of investor you are, voting rights might play a pivotal role in making your decision.

Market Capitalisation Stocks

These stocks are no different from the typical stocks per se, but it’s good to know when doing your research. Investors like to categorise the stocks based on the market capitalisation (market cap) – the company’s total value based on the total shares issued.

These are calculated by taking each share price multiplied by the total number of shares in the market.

It’s usually broken down into large-cap, mid-cap, and small-cap stocks.

What are large-cap stocks?

Large-cap stocks belong to companies with high market capitalisations – which is defined by having at least $10 billion worth of market cap.

What are mid-cap stocks?

Mid-cap companies are defined as those with a value between $2 billion to $10 billion worth of market cap.

What are small-cap stocks?

Small-cap companies usually have between $300 million to $2 billion worth of market cap.

Potential Returns or Volatile Stocks

This category categorises stocks based on their potential growth and/or volatility. As different companies have different growth potentials and are susceptible to various risks, you ought to hear these types of stocks commonly discussed amongst your friends.

Growth stocks

Growth stocks are shares of a company that has the potential to outperform the market in the long run. These are stocks that are highly promising and are most commonly talked about.

Think of Apple, Facebook, and Tesla shares.

Value stocks

Value stocks are shares of a company that is currently undervalued. Investors would purchase these stocks and wait until their price increases to the “correct” valuation before selling them off.

Blue-chip stocks

Blue-chip stocks are shares of a company that is highly reputable and well-established. These companies are usually the market leaders and are consistently paying out dividends to their shareholders.

These stocks are considered the “safest” stock to hold as they are deemed not to have financial difficulties, making them a popular investment in Singapore.

Think of SingTel, Disney, and DBS.

There are other types of stocks that investors frequently describe and put a label on. However, we believe that the above are the most important to know and the most commonly discussed in Singapore.

If you’re interested, you can check out more types of stocks here.

How much do you need to start investing in stocks in Singapore?

The minimum amount needed really depends on whether you’re buying stocks in Singapore or other markets and how much each share costs.

To start investing in stocks in Singapore, you need to note that you need to buy shares in lots and can’t buy them individually. A lot is 100 shares (used to be 1,000), and to calculate how much you need, use this formula below:

Unit Price of Each Share x 100 shares

So if the price of each share is $1, and you want to buy 1 lot, you’d need $100 ($1 x 100 shares).

If you’re investing in stocks from other countries, the amount in each lot might be different. For example, stock exchanges in the US allow you to buy individual shares of a company – a great way to start with much smaller amounts!

Fees Involved while Investing in Stocks

In Singapore, the best place to find stocks is the Singapore Stock Exchange (SGX). Here you will be able to find various listings of both new and old companies.

As for fees and charges, you’ll require payment of brokerage commission to the broker that you choose. The commission is often a select percentage of the amount of investment that you make or the minimum commission, whichever is higher.

Along with these commissions, you will also require payment of various brokerage fees, a Central Deposit Account fee, along with a Singapore Exchange access to trade fee.

Moreover, it would be best to keep in mind that all these fees will also have Goods and Services Tax (GST).

Advantages of Investing in Stocks

Some of the best advantages of stock investing include:

Economic growth advantage

As the economy grows, companies will grow and earn more revenue and profits too. This would probably mean that the value of individual shares will increase.

If you’ve invested earlier, you’ll stand to earn from capital gains from your investments if you decide to sell.

Ease of purchase

It is usually simple to purchase stocks in the stock market. Once you have the necessary things needed (a CDP account & broker), you’re basically good to go.

Capital Gains & Dividend Payments

You can choose to buy and hold stock to benefit from its dividends, and you can buy a stock of your interest and sell it anytime you think it will get good value profit for you.

Do note that not all companies declare dividends. So if dividends are your main reason to buy shares, then you’ll need to look for dividend-paying stocks.

Potentially the highest returns

Suppose you’ve done your research correctly and you’re deciding to trade or invest in stocks. In that case, you have the highest potential to earn the most significant returns amongst all the investment securities available.

Supposed the share price jumps 200% in a day, that 200% increase will be yours to keep!

Ease of selling

This means that you can easily sell the stocks that you’ve bought at any time you want. The more easily a company can sell a stock, the more ‘liquid’ it’s said to be.

So in cases where you need urgent money, you can sell the stocks that you own. But remember that this is also a risky decision due to the chances of facing losses.

Disadvantages and Risks of Investing in Stocks

Here are some of the risks of investing in stocks:

Highest potential losses

Although there’s the highest potential to get returns from stock investing, it also comes with the highest risks involved. There are even chances that you might lose part or your entire investment capital.

If a company performs poorly, investors may lose confidence in them and start selling their shares. When it happens, the value of the company’s stocks will decrease considerably.

Once it decreases, you may face the loss of your initial investment should you sell it. Moreover, the share price might take years before increasing in value, or they might not go back to their original levels at all.

Payment preference

Common stockholders get paid last during dividends, as companies use their profits to pay preferred stockholders, bond-holders, and creditors first.

If the company you’re invested in goes into liquidation, you might not even get any or part of your capital back. This is because shareholders are last on the list to receive any cash leftover as compared to creditors.

Research

Buying stocks might be easy, but researching between different companies and choosing those suitable for you can often be a tiring task for many new and old investors.

You’ll need to do different analysis types on the company level, sector level, country level, and potentially on the global scale.

Emotional effects

The stock market will always have fluctuations in its stock prices, which affects many people’s decisions. It often develops into greed or fear, both of which are not good for making logical investments.

If you’re someone who can’t manage your emotions, you might potentially lose a lot if you’re investing in stocks.

Requires high skill levels

Speaking of fear and greed, it is also true that older/more experienced investors often have the upper hand in picking good stocks. Moreover, many such investors have extra tools and other trials and techniques to help them select the market’s most profitable choices.

These additional tools often come with more money and are something that casual investors don’t have the luxury of.

What are your Objectives and Risk Appetite?

The stock market will always have a ton of options to choose from, and therefore, it is always best to do your research before diving in.

Be patient and list out the companies that match your criteria and objectives. Take into account whatever risks you can take when buying a stock, and depending on it, you can pick those that meet your conditions.

You also need to identify the type of investor you are. Here’s a guideline on how investors generally label themselves based on their strategy:

Growth Investors

These types of investors buy stocks that have the highest growth potential and then sell them when their value gets higher.

Value Investors

These investors tend to buy stocks from companies that are undervalued and not too well-known but have a decently profitable business.

These investors’ main goal is to purchase shares of a company before it becomes widespread and its stock prices rise.

Passive Investors

These are the most common types of investors in Singapore. Such investors do not have much experience with proper value investing or generally want to avoid risks.

They usually buy stocks from popular and mainstream companies (blue chip stocks) that are highly unlikely to fail and hold those shares for a definite time to obtain dividend income.

What to look out for when choosing a stock?

Picking the right stock for your needs is what you should often focus on. Here are some basic ideas that you should have in the back of your mind before choosing a stock to buy:

Industry-Level Research

Try to check which industries are booming at the moment and research into it. This way, you can pick stocks from companies that have higher chances of growth.

Operations and Profitability

Look into the chosen companies and analyse if the company’s operations and profitability are stable and sustainable.

Management Team

Always make sure that you do not end up buying shares of an incompetent company that cannot do its job correctly. This is important because a company with genuine management will most often bring better revenues.

Share Price History

Another important aspect is to research thoroughly into a company’s share price history to assure yourself of stocks that are not stagnant and unprofitable.

Financials

Remember to check the company’s Debt/EBITDA (Earnings before Interest, Tax, Depreciation, and Amortisation) to show if a company can pay off its debts.

This will help you invest safely in companies that are not on the brink of insolvency.

You should also look into different financial ratios and analysis to identify if the company has potential. Commonly used ratios are the dividend yield, earnings per share (EPS), and P/E (price to earnings) ratio.

How to invest in stocks if you’re in Singapore?

Before you start investing in stocks, you need to make sure you’re ready. Here are some steps you can take to be prepared:

  1. Make sure that you have enough financial resources to buy stocks and also bear its risks. (Have emergency funds)
  2. Cultivate the skills needed to analyse the stock market properly and any other factors that may affect it. (Learn to read financial statements)
  3. It is not compulsory, but you can also get your hands on specific tools to help you make better choices in picking stocks.
  4. Always check whether the stock that you plan to invest in is suitable for yourself.

 

Once you’ve got the above covered, you can look into starting a Central Depository Account (CDP) and a brokerage trading account.

A stock brokerage account is an investment platform that will execute your investment plans and offer other services that can add further help to your stock purchases.

You’ll also need a Central Depository Account (CDP) where all the stocks you buy will be stored. You can also keep it through custodian accounts that some brokers may offer. If the broker offers a custodian account, you don’t need a CDP.

Read our guide to brokerage accounts in Singapore.

The Singapore Stock Exchange (SGX) is the best stock market in Singapore (and the only one), where you can find a lot of companies and pick one that suits your ideals.

Otherwise, most investors look into China and US markets to invest in due to the larger market size and wide range of stocks to choose from.

Always be ready and prepared with what you want and when you plan to cash out your investments. If you’ve already met your investment objectives, many recommend cashing them out to prevent any adverse effects.

You don’t have to fully cash out your investments; just make sure that most of them are taken out while leaving a small portion to benefit from potential growth.

When you fix onto a definite investment objective and clear time horizon, investment decisions become more comfortable easier to execute.

Final Words

Stock investments in Singapore may seem confusing and too loaded with information. This is often a drawback that can make new investors shy away from the topic.

But once you conduct further research, it will get clearer and easier to understand. And once that understanding forms, you may find that stock investments are a great way to build your investment portfolio and earn experience and profits along the way.

If done right, investing in stocks can earn you both profit and market experience, which in today’s world is a great asset to have. However, with profits come significant risks involved.

If stock investing seems like too much work or you’re not sure if you’re making the right decisions, you can consider investing via equity-based index funds.

Index fund investing through exchange-traded funds or unit trusts is a “safer” way to invest in stocks. They offer diversification that reduces the risks in stock investing, and you can begin with smaller amounts.

If you’re ever unsure whether which investment decisions are for you, it’s always best to seek financial advice or risk losing your hard-earned money.

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