Investment FAQ

  1. What affects the value of money?

    Money has a tendency to lose its value over time because the price of goods and services has an upward tendency. This is called inflation. Here are some factors that could eat away your money:

    Inflation. Simply, inflation occurs when the price of goods and services rises. And when prices rise, people will ask for a rise in salary. That's why the money you earn today will be worth less 10 years from now.

    Interest rate fluctuations. A drop in interest rates means a smaller return on your deposits, and if the interest rate is lower than the rate of inflation, your savings lose value. But for some investments, such as equities and bonds, the value of your investment may rise because of the drop in interest rates.

    International economic trends. What happens in other economies can affect the value of your money. Political circumstances, GDP growth, and stock-market indices in other countries can all have an impact on the buying power of your money.
  2. When should I start planning for the future?

    The sooner you start, the better. The example below shows the difference in accumulative savings between Mr Early and Mr Late, who start saving at different times.

    Mr Early saves for 10 years and then stops. Mr Late starts 10 years later and saves for 20 years. But Mr Early still gets 87% more than Mr Late (based upon 10% annual growth, not taking into account annual inflation).

    Year Savings Accumulation Savings Accumulation
    1 1,000 1,100 0 0
    2 1,000 2,130 0 0
    3 1,000 3,641 0 0
    4 1,000 5,105 0 0
    5 1,000 6,716 0 0
    6 1,000 8,487 0 0
    7 1,000 10,436 0 0
    8 1,000 12,579 0 0
    9 1,000 14,937 0 0
    10 1,000 17,531 0 0
    11 1,000 19,284 1,000 1,100
    12 0 21,213 1,000 2,130
    13 0 23,334 1,000 3,641
    14 0 25,667 1,000 5,105
    15 0 28,234 1,000 6,716
    16 0 31,058 1,000 8,487
    17 0 34,163 1,000 10,436
    18 0 37,580 1,000 12,579
    19 0 41,338 1,000 14,937
    20 0 45,471 1,000 17,531
    21 0 50,018 1,000 19,284
    22 0 55,020 1,000 23,523
    23 0 60,522 1,000 26,975
    24 0 66,575 1,000 30,772
    25 0 73,232 1,000 34,950
    26 0 80,555 1,000 39,545
    27 0 88,611 1,000 44,599
    28 0 97,472 1,000 50,159
    29 0 107,219 1,000 56,275
    30 0 117,941 1,000 63,002
  3. I'm a new investor. What are the basic rules to investing wisely?

    Here are some simple guidelines to follow for making wise investments:
    • Set your objectives.
    • Do your homework before investing. It is risky to rely on pure luck when making an investment.
    • Ask yourself whether you want to invest or speculate.
    • For investment, make sure you have a cut-off point in mind to protect your bottom line.
    • In the case of speculation, don't make investment decisions out of panic when the market becomes volatile.
    • Invest as much as you can afford, but no more.
    • Don't leave money lying around in non-interest bearing accounts except as stand-by cash.
    • Make sure your investment portfolio gives you a big enough return to beat inflation.
    • Always use a reputable investment firm or financial institution.
    • Diversify. Invest internationally and spread your investments over a range of low, medium and high-risk products in order to hedge against losses.
    • Make sure you understand exactly what risks are involved with every investment you make.
    • If in doubt, seek professional advice.
    • Keep an eye on your investments. Take opportunities and shift products if it is beneficial to do so.
  4. What should I do before I start investing?

    Know your current financial situation. Before you begin to think about investing your money, you should know how much you could spare each month. Naturally, the more you can put aside now, the better it will be for your future. It's up to you to achieve a balance between your current lifestyle and your expectations.

    Use our handy planning tool to find out how much you can invest. Or take a look at the example below.

    Calculate your income and expenses taking into account the following:
    • Mortgage repayments
    • Personal tax
    • Loans and overdrafts
    • Living expenses
    • Emergency funds
    • Car expenses
    • Entertainment
    • Holidays
    • School fees
    • Family commitments
    Generally speaking, whatever spare cash you have after allowing for all your expenses is what you can afford to invest. You can commit a certain amount each month and look upon it as a monthly expense. As your salary increases, you should also increase the amount you invest proportionately. By doing this, you'll be keeping up with inflation and your money will be working harder for you.
  5. I know how much I have to invest, now what?

    Once you know how much you can afford to invest, you can set your objectives - why you are investing and how you are planning to use your investments. Your objectives could incorporate any combination of the following:
    • Retirement
    • Protection for your family
    • Education for your children
    • Special needs or emergencies
    • Specific occasions (e.g. a wedding, buying a house, emigrating)
    • Wealth accrual
    Now make a list of your objectives, in order of priority, because you may not be able to afford to achieve every single goal. Divide your objectives also into long-, medium- and short-term goals. This will help you choose the type of investment you want to make. For example, if you plan to send your children to study abroad in three years' time and you need to save for their tuition fees and living expenses, you'll need a fairly low-risk investment. Think about when you will need the return as it also helps to determine the time horizon of your investment.
  6. How do I determine my risk level?

    Keeping your objectives in mind, determine how much risk you're prepared to take. Do you want to adopt a conservative, moderate or aggressive investment strategy? Ask yourself the following questions before you make your decision:
    • Are you prepared to make long-term investments, which will allow you to take greater risks for higher returns?
    • If you're going for short-term, high-risk investments, can you afford to lose some of the money you invest?
    • If you're married with children, what level of risk can you take and still be certain of their future?
    • If you want your money to be safe, will you be content with a moderate rate of return?
    • If you opt for safe investments, will the returns be enough to cover inflation?
    The important thing to remember is that, in general, you can afford to choose higher-risk investment tools for longer-term investments because, even if they go down in the short term, they are likely to show an overall upward trend over a long period. But for short-term investments, you will find low-risk products a more reliable and safer option.
  7. What types of financial tools can I invest my money in?

    You can choose from three main financial tools with varying degrees of risk:
    • Deposits
    • Investments
    Traditionally, savings accounts are the safest place to put your money. They provide high liquidity - you can quickly and easily retrieve your money - but offer lower rates of interest. Investment tools offer potentially higher returns but with a greater risk.
  8. What investment products are available in the market?

    One thing to remember about investments is that the level of return is generally proportionate to the level of risk. Thus an investment offering potentially high returns will usually have a high-risk element.
    • Securities/Stocks
    • Bonds
    • Foreign currency
    • Unit trusts
  9. What are securities?

    Securities is the generic name for shares and other investment tools quoted on the stock market. Individuals may invest in securities, and check the progress of their investment every day in the newspapers or on the Internet.

    It is possible to enjoy a higher rate of return from investing in securities than from savings accounts. Stock market securities in thriving economic climates will generally show an increase over time, and sometimes within a very short period. However, all stock markets are volatile and buying securities should not be seen as a short-term method of making money.

    Buying securities also costs money. Stockbrokers make various charges for their services, such as commission.

    Other than investing in securities by yourself, you can assign asset management professionals or companies to invest on your behalf.
  10. What are bonds?

    Bonds are issued by governments and companies in order to raise money, and are a relatively safe investment. Bonds are usually seen as a long-term investment and can have terms of up to 30 years, although five to 10 years is the normal investment period. Many fund managers use bonds as a stable element in unit trust products.
  11. How do I invest in foreign currency?

    There are two ways to gain a return on your capital from foreign currency, either through interest-rate differences or exchange-rate fluctuations.

    Many financial institutions offer margin trading on foreign currencies. This means that you deposit a small percentage of your investment amount, but receive the whole amount of the interest. Of course, this is highly speculative and can be extremely risky. If the currency devalues by more than your interest return, you will actually lose money.
  12. What are unit trusts?

    Unit trusts (or mutual funds) are an attractive medium- to long-term investment tool. They give investors the opportunity to diversify even a small investment in securities, bonds, currencies and commodities in markets around the world. This is achieved by combining the resources of many investors into one large fund which can be spread over a number of different investments and over a wide geographical area. This range of investments is called a portfolio.

    Unit trusts have a number of benefits:

    Spreading the risk.
    You spread your investment across a diverse portfolio. This is usually safer than investing in a single share. Of course, levels of risk and return also vary among different funds.

    Professional management.
    Fund managers spend their working lives researching and managing investments. It would be very difficult for an individual to have an in-depth knowledge of markets around the world. With a unit trust, their expertise is working for you.

    Access to worldwide markets.
    Your money can be invested in overseas markets, which may not be easily accessible by individuals.

    Economies of scale.
    With a large number of investors contributing to a single fund, operating costs and commissions can be amortised. Individual investors thus pay lower fees.

    Liquidity.
    You can buy and sell unit trusts on any dealing day (except on public holidays in the countries to which your fund is linked). Your money need not be tied up for a specific period of time. Some unit trust products are linked to the index options listed on the various stock exchanges or sometimes to currency options. They can be slightly riskier than more diverse funds, but they're likely to offer a greater return on your investment.
  13. How do I choose the right investment partner?

    Many people in the past have lost money through unwise investments or lack of relevant information and assistance. Or, more to the point, through unscrupulous brokers. If you're thinking of making an investment, here are some questions you should answer or actions to take:
    • Are you dealing through a reputable financial institution?
    • Is the company registered with the appropriate government bodies?
    • If you're at all unsure who you're dealing with, seek the advice of an accountant, a financial advisor or your bank manager.
    • Compare the services offered and the fees charged with other companies.
  14. How do I choose the right investment partner?

    The more you know about what you're investing in the better. Stock prices and unit trust prices are quoted in the newspapers and on the Internet.

    If you're thinking of buying shares in a particular company, ask the company or your broker for their annual report. This will give you valuable information about the company's performance, its financial situation and future plans.

    Many investment companies also hold seminars, especially when they're launching a new fund. Banks also host similar events for the benefit of their customers. Attending them can be informative and useful. Constant review helps to keep your investments up to date. In order to maximise the money you invest, it is necessary to review your investment portfolio on a regular basis. Your financial situation and your investment goals could change, and markets are constantly shifting.

    New opportunities and investment tools also emerge from time to time, and it is possible that some investments you are holding are not performing to your expectations. If that is the case, you may consider revising your portfolio.


General disclaimer
Investment involves risk. The prospectus of the funds should be read for further details. The price of units or shares and the income from them may go down as well as up and any past performance figures shown are not indicative of future performance. The information contained on this website is intended for Singapore residents only and should not be construed as a distribution, an offer to sell, or a solicitation to buy any securities in any jurisdiction where such activities would be unlawful under the laws of such jurisdiction, in particular the United States of America and Canada. Please refer to the full Unit Trust disclaimer for further important details.

© Copyright. The Hongkong and Shanghai Banking Corporation Limited 2008