There are three common reasons why beginners don’t build a globally-diversified portfolio.
1. Lack of time - it’ll take forever to gain exposure to the different markets; it’s too slow!
2. Lack of resources - I’ll be dead broke if I invest S$1000 into 17 markets and 5 regions; it’s too expensive!
3. Lack of knowledge - I don’t know how; it’s too complicated!
If you’re just getting started, chances are at one point or another, those three thoughts have crossed your mind, sometimes all at once. This article hopes to respond to all three thoughts.
Three questions, three answers
Of course, this article won’t solve all your concerns, but it will try to address the three common ones we highlighted above.
1. Lack of time - it’ll take forever to gain exposure to the different markets; it’s too slow! - After reading this article, you could build a globally-diversified portfolio in as little as 10 minutes
2. Lack of resources - I’ll be dead broke if I invest S$1000 into 17 markets and 5 regions; it’s too expensive! - Actually, all you need is S$200/mth, or the willingness to set aside less than S$7/day each month
3. Lack of knowledge - I don’t know how; it’s too complicated! - This article will show you how in three simple steps
But before we get into the process, let’s manage expectations.
This is a simple portfolio – it’ll set you down the road of investing from a portfolio point of view, (which we believe is a more systematic and consistent way to approach investing in general), but to be perfectly honest, it won’t give you the high-octane return exposure that comes from more volatile assets, such as Emerging market equities, or small cap equities.
You will need an active Fundsupermart account, (or you’ll need to sign up for one, don’t worry its free), and we’ll be making use of the RSP (Regular Savings Plan, read all the way till the end for a special RSP promotion), which allows investors to invest in a range of funds at a minimum S$100/mth investment. The typical initial investment for most funds is S$1000.
So here are the 3 simple steps.
Step 1: From Table 1, choose a global equity fund from the RSP list
Step 2: From Table 2, choose a global bond fund from the RSP list
Step 3: Start a S$100 RSP into the two selected funds
Apply for RSP here, link.
And that’s all there is to it.
Slowly Does It
You’re probably feeling a little incredulous at how simple it is: two weakly-correlated assets, two recommended funds, one portfolio, one modest S$200 monthly dollar-cost-averaged investment and, presto, a balanced portfolio.
Remember, this is just a start for beginner investors who want to get their feet wet. This portfolio will give you a taste of what to expect when investing – the highs and the lows, the gains and the losses, and the benefits of watching your bond fund hold steady while your equity fund swings with market sentiment.
This gradual easing into investing is important for beginners, because picking up bad habits early (such as making large speculative bets on highly volatile and illiquid markets) is a recipe for eventual portfolio disaster. Start with a manageable amount of capital, get some experience, and keep on learning.
Nick Tay tweets randomly on Twitter, connects with people on Facebook or Google+, and loves all things investing, social media and Youtube. If you have feedback, you can email, or leave a post on the forum. I promise to read all feedback, and will make every effort to respond where possible. If you know of anyone who can benefit from this article, do a favour and share it with them– but only if you think it’s worth sharing!