A Beginner’s Guide to Investing in Singapore: Diversification, Asset Allocation, and Dollar-Cost Averaging

Understanding Diversified Investment Products

Mutual funds and exchange-traded funds (ETFs) are professionally managed investment products that provide diversification across a mix of asset classes. Compared to fixed deposits or bonds, these products can offer higher returns, but they also carry greater risks. Because the underlying investments are analysed and managed by a fund manager, these products come with management fees that can reduce your overall returns.

With higher-risk investments, there is a genuine possibility of experiencing losses, and your returns are not guaranteed. Therefore, it is important to thoroughly understand the product and its associated risks before committing your money. These products are ideal for investors with a long investment horizon who are looking to grow their money at a higher rate compared to fixed deposits and bonds. Mutual funds are also well-suited for those who prefer a hands-off approach to investing, as a professional firm manages the investments on their behalf.

The Role of Gold in Diversification

Gold has been traded for thousands of years and has seen a surge in popularity in recent years, driven by its sharp rise in price. In Singapore, you can invest in gold by buying physical gold bars or coins, trading gold ETFs, or investing through gold mutual funds or unit trusts.

Unlike stocks and bonds, whose prices are largely determined by the performance of a company or government, the price of gold is shaped by economic conditions such as periods of financial uncertainty or geopolitical stress. Traditionally, gold is held by investors looking to diversify their portfolios and as a hedge against inflation. While gold is widely regarded as a safe-haven asset, it is not entirely risk-free.

Dollar-Cost Averaging and New Investment Schemes

Dollar-cost averaging is a strategy that involves investing a fixed amount at regular intervals, regardless of market conditions. This approach can help reduce the impact of market volatility over time.

The Central Provident Fund (CPF) Board will work with commercial product providers to offer simplified, low-cost, and diversified life-cycle investment products under a new scheme. This new scheme caters to long-term investors who are willing to take some risk for potentially higher returns but may have less expertise in navigating the CPF investment offerings or prefer not to actively manage their investments.