Call me crazy, but I’m a skeptic when it comes to one-size-fits-all solutions to ‘financial literacy’.
My main objection is that personal finance is too abstract and complicated a subject. Its lessons also don’t apply universally, since everyone comes from different family backgrounds with different upbringings – hence the “personal” in personal finance.
Money, and its associated problems, are also deeply emotional, tied to feelings of self-worth and identity. And there’s nothing you can put in a textbook that will help you deal with these issues.
In my opinion, the only way to become more financially literate is through practice and first-hand experience.
Trawling through the internet for investment advice can be really daunting even for someone like myself who has worked in finance-related industries for the past decade. I’ve come across articles which overwhelm readers with financial jargon, candlestick charts and statistics.
At best, financial jargon gives readers the illusion of understanding. At worst, it puts them off investing all together by overwhelming them with charts and statistics. Whenever I speak to younger Millennials and Gen Zs, I can literally see their eyes glaze over when we start talking about saving rates, returns, and asset allocation. And I get it: why should the average person working 50-60-hour weeks care about how derivatives work? Or how to read a financial statement?
A possible solution to this paralysis is simple:
1. Limit the overconsumption of financial blogs and news
When It Comes to Investing: Keep it Simple and Smart!
A passive investment plan means setting aside a fixed amount of each paycheck and investing in a diversified portfolio containing a mixture of stocks and bonds, then holding this portfolio for the long term (10+ years).
An efficient way to do this is to invest in a low-cost ETF, which is basically the equivalent of buying a basket of stocks or bonds instead of picking individual companies or industries to invest in.
Because why go through the headache of predicting which Singaporean companies will succeed and fail in the next ten years, when you can just own all the major Singaporean companies through a stock ETF like Nikko AM Singapore STI ETF? (which tracks Singapore’s stock index, the Straits Times Index – or STI for short).
Similarly, why take the risk of buying possible junk bonds or bonds tied to just one company (which may run the risk of going bankrupt or defaulting on payments given today’s climate). Instead you can invest in an ETF which holds bonds issued by the Singapore government or more reputable companies and statutory boards in Singapore, through bond ETFs like ABF Singapore Bond Index Fund or the Nikko AM SGD Investment Grade Corporate Bond ETF. Both bond ETFs hold bonds issued by household names like HDB and LTA. (these names are among the bond issuers that the ETF invests into as of 31 July 2020 which are provided for illustration purposes and are not securities recommendations).
You may be asking: what happens if Singapore’s economy takes a turn for the worse? Wouldn’t I lose money on my investment?
The answer is yes – all investments carry some form of risk and in this case, possibly in the short term. But this just means that you can buy a piece of the Singaporean economy at a bargain. Over the long term, economic growth may turn for the better and
be positive, and the performance of an ETF like Nikko AM Singapore STI, which tracks the performance of the top 30 companies on the Singapore Exchange, and the Nikko AM SGD Investment Grade Corporate Bond ETF, which promotes stability during market stress, may be able to give you the balance over both the short- and long-term investment period.
In practice, this means that people should look into automating their investments by signing up for a Regular Savings Plan (RSP), which offers affordable investments for as little as S$50 or S$100 per month. Essentially, it takes S$50/S$100 out of every paycheck and invests it in a diversified basket of stocks and bonds.
Note on Diversification and Fees