There are many ways to learn how to make money in Singapore. To make things simple, I have categorized incomes into 2 specific groups – passive and active. Active income refers to the income received from performing a service, e.g. your salary you get from your job. Passive income refers to the income you get without working for it, e.g. rental income. Today, I will be focusing more on making passive income in Singapore.
Why do you need to invest?
“If you don’t find a way to make money while you sleep, you will work until you die.” This famous adage was coined by the world richest investor – Warren Buffett. It explains the importance of having passive income. And it is usually generated from investing.
There are many things we can invest in: properties, stocks, commodities and many more. Investing has become an imperative necessity due to the inevitable inflation. Putting your hard-earned money into a bank, your money will depreciate by roughly 2-4% per year, depending on the inflation rate.
The rule of 72 states: If you divide 72 by the inflation rate, the answer would be the number of years it would take for the value of your money to be halved. For example I have $1m in my bank account, and assuming inflation rate is 3%; dividing 72 by 3, I will get 24. This means that the $1m in my bank now, would be only worth $500,000 24 years later. Isn’t that scary?
Now that you know the importance of investing, let’s proceed to what can we invest in.
How to Make Money in Singapore – Investing in properties
There are a few ways to invest in a property. One can buy a property at a low/reasonable price and sell it off at a higher price as the property appreciates in value. Another way is to buy a property and rent it out to collect monthly rental income. Investing in properties can be a great way to build wealth, however, the starting capital is much higher relative to stocks. A mentor once mentioned to me that in an event that if I need an urgent amount of cash, I would not be able to sell a small part of the house to fund that need. I would have to sell the whole property instead.
Moreover, it might take a long time to receive the cash from selling the property due to administrative process. Property is not liquid. (It cannot be converted to cash easily.) That is the reason why I don’t invest in properties. Or rather, I can’t. Being an undergraduate in a local University without a steady flow of income, I don’t have the capital to buy properties. Well, not yet.
How to Make Money in Singapore – Investing in commodities
A commodity is a basic good used in commerce e.g. gold, oil, gas etc. Investing in commodities is based on the supply and demand of that commodity. When the demand of the respective commodity increases, or the supply of it decreases, the perceived value of the commodity increases. However, there is something I would like to point out. The actual value and the perceived value are 2 very different things and they are not corelated in any way. When the perceived value of gold increases, the actual value actually does not change. There is nothing that actually causes the actual value of gold to increase. A gold bar cannot produce an extra 2 grams of gold overnight. Thus, it can be very dangerous as it is often very speculative. As a value investor, I would want to understand the value of something before investing in it. I personally do not invest in commodities.
How to Make Money in Singapore – Investing in stocks
Behind every stock, there is an underlying business. Investing in a stock is studying the fundamentals of a company and believing that the company will generate more money 10 to 20 years later. Before investing in any stocks, I will study the quantitative and qualitative aspects of the company. The few things I really like about stocks is that it is really liquid, (converts into cash very easily) and it also requires very little capital to start with. You can start with as little as $100! Here’s the guide to how to buy stocks in Singapore.
Another thing I like about stocks is that as a business grows and improves, it will be reflected on the share price over the long-term. (Do take note that short-term increase/decrease in price does not reflect the progress of a company.) I would like to quote Benjamin Graham for this matter. “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” When the share price increases over the long run, there is a reason to it – the company is generating more money.
Before investing in a company, an overall fundamental analysis of the company is IMPORTANT. If the company has strong investment moat, that will be even better. We definitely do not want to simply put our money into any stock, thinking that it will appreciate down the road. We all know what happened to the Lehman Brothers during the Global Financial Crisis in 2008. To sum up, the stock market is one of the best ways to build wealth with little capital but it can also be a platform lose money very quickly without the right knowledge.
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