What is investing?

Hi Singaporean millennials!

Recently, I have made a polling to get a sensing of what you guys have been interested to hear about investing. It turns out that many are interested to know what exactly investing is all about!

This topic is very close to my heart as I remembered how when I first started learning about investing in 2014, I was still in school. I remembered how back then, when someone was interested in learning about investment, there was not a lot of resources in school to learn from. I remembered sitting in Economics classes learning about the supply and demand curves which were the nearest to teaching about the stock market, without actually teaching us how to invest in the stock market.

Hence, I created this blog with the intention to educate the younger population with the right investing knowledge and fundamentals. So, back to the topic, what is investing?

“Investing is the acquiring of ‘goods’ to generate future wealth”

Everyday, students go to school to gain knowledge and expertise. In exchange for these intangible “goods” called knowledge and expertise, they spend their time away in schools. These “goods” can be used to generate a salary when they go out to work in the future eventually. This is a form of investment!

Another form of investment that we more commonly talk about in finance is the “money” kind of investment. The tangible form of investment! In this scenario, money is used to acquire actual goods to generate future returns. These “goods” range from stocks, bonds, properties, currencies to even commodities such as oil! Usually, investors will expect to hold these “goods” for a period of time in order for these “goods” to either (1) appreciate (increase) in value or (2) give out dividend payments.

“Dividend is money given back to you by a company that you hold stocks with as a form of profit-sharing with all the stockholders.”

As a stockholder of a company, you are essentially one of the owners of the company. With that title, you gain a share of their yearly profits and also get to have voting rights whenever the company intends to make a big decision in their business. In addition, companies will hold annual general meetings to inform their shareholders about how well their business has been going.

Apart from buying stocks, buying properties can also be a form of investment. A property usually appreciates in value over time. A property can also be used to generate returns just by renting it out. Since there is no need to do anything apart from finding suitable tenants, the money generated from renting can be deemed as passive income. Passive meaning when you are sleeping, the money is still generated without requiring you to do anything.

Other than stocks and properties, buying bonds is also another form of investment. A bond is a secured loan issued by either a government or company. Issuing a bond is like asking for money. A government can ‘ask for money’ from investors by issuing bonds when they face insufficient tax revenue. A company can also issue bonds in order to raise cash for their business operations. An example of company bonds is the Astrea IV bond from a Temasek-linked company while an example of government bonds is the Singapore Savings Bond from the Singapore government.

“Did you know? Bonds used to be pieces of paper certification physically held by investors in the past? Imagine accidentally losing or someone stealing it… However, they are stored electronically nowadays!”  bond cert

The value of the bond will be stated clearly, along with the amount of interest that will be paid every 6 months or every year. There will also be the period of maturity which means how long the deal will last before the government/company returns back the original loan to bondholders.

Apart from bonds, stocks and properties that I talked about, there are a lot of alternative “investments” out there. Some are legal and legitimate while some are illegal and illegitimate. It is important to do your “homework” and research about the investment product before getting into it. This will save you a lot of trouble and money. For example, many people have had their money cheated by ponzi schemes or by multi-level marketing. Examples include durian, wine and cheese investments. Some go as far as investment in gold that sounds pretty believable!

“Usually in ponzi schemes, people are cheated into thinking that they can earn crazily high returns like 20% or more of their investment in just a few months.”

You can read more about it online, and they are also commonly known as pyramid schemes. As for multi-level marketing, it is usually in combination with ponzi schemes where investors are often lured to convince other people to invest by offering them referral rewards. After the scammers gain enough ‘investment’ funds, they will run away with the money to another country, never to be seen again!

“As the saying goes ‘there is no free lunch in this world’. If something is too good to be true, it probably is too good to be true.”

Hope that you have learnt something about what investment is all about! Quickly follow on to part 2 of the “For Millennials, by Millennial” series where I will be showing you a detailed step-by-step guide on “How to Invest with confidence”! If you enjoyed my articles/guide, you just need to share it with your millennial friends so that they can learn together with you too! If not, see you on the second series!

Disclaimer: Website and the information contained herein is not intended to be a source of advice or credit analysis with respect to the material presented, and the information and/or documents contained in this website do not constitute investment advice.

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