What Should An Undergraduate Invest In?

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Thought about investing but came to the conclusion that you are too young to be in the game? Think that you would be better off spending more time hitting the books? Well, that’s a myth that undergraduates like you and I typically fall for. While your teachers would have reminded you time and again that studying is important, they often neglect teaching you to be financially savvy.

Indeed, investing is one of those skills that will take you a long way, even after you graduate. The earlier you start to invest, the more prepared you are for the future. It is often too late if you start investing only a few years after you have started working. Your undergraduate days are the best time for you to get started with investing when you have all the time in the world, literally.

Here are 5 common investment options for you to invest in while still in your undergraduate days.

Related: 6 Essential Investment Books Every Newbie Investor Should Read

1. Singapore Savings Bonds

Undergraduates are known to be a savvy bunch of people. We know how to scour through the internet to find the best dining perks. Yet, it is surprising that not many of us know about the attractive Singapore Savings Bonds.

Perks of investing in Singapore Savings Bonds

Singapore Savings Bond brings the best of both worlds to us as beginner investors. It is a safe haven asset that protects us against capital loss. At the same time, the Singapore Government pays us interest for investing in Singapore Savings Bond. In the event you need cash for another purpose, you can exit your investments within a month. There won’t be any penalties for exiting early. The only caveat is that the longer you invest in Singapore Savings Bond, the more interest you earn.

The MAS has made it so accessible for us to invest in Singapore Savings Bond that it is right there in front of us. All you need to do is to apply for it via an ATM or your bank’s iBanking app. It is that simple.

Check out How to Buy Your First Singapore Savings Bonds in 4 Easy Steps

Read also:  All You Need to Know About Using Your SRS Funds to Buy Singapore Savings Bonds

2. Endowment plans

Another type of investment that is common for undergraduates to invest in is an endowment plan. If you have a friend who is working part-time as an insurance agent, you might find him/her touting you an endowment.

Creating a forced savings for your tuition fees

Endowment plans are typically marketed as a form of forced savings. The idea is simple. You commit to putting in S$X every month for the next 3 years. Then, at the end of 5 years, you will be able to receive a lump sum of money. You can also choose to put in S$x at the start and receive a larger sum of money at the end of 5 years.

Read also: How an Endowment Plan Can Help You Reach Your Financial Goals

Endowment plans come with an investment element that gives you an investment return. The investment element is split into two portions: Guaranteed return and non-guaranteed return.

The guaranteed return is the insurance company’s obligation to you. It is a guaranteed amount you will receive from them. The non-guaranteed return, on the other hand, is a variable component. If the insurance company’s investment portfolio generates a good return, they will declare a bonus to you. Else, you might not receive any bonus from them.

For undergraduates, an endowment plan can be a good way to save for your university fees. It helps you break your university fees into small savings step. At the same time, it inculcates a habit of saving in you. If you diligently put money into your endowment plan throughout your university life, you can break free from your university debt the moment you graduate. How does that sound?

Check out 6 Ways to Become Debt-Free After University

3. Exchange-Traded Funds

One of the biggest challenges to starting investing is the lack of knowledge. As beginners, we rather choose not to make a move than to make a wrong move. After all, 0 is still better than having negative returns, right? But what if there is a simple way for you to be “right” all the time? Summon the exchange-traded funds (ETF).

The whole idea behind ETF is, rather than investing in individual stocks, you invest in the whole market. ETFs are made up of multiple assets packaged into a single fund. An ETF aims to produce a return that reflects the performance of every asset that is packaged into it.

For those who are new to investing, here is an analogy for you. Investing in an ETF is like buying a set meal at McDonald’s. With a set meal, you get the burger, the fries and the drink. Similarly, with an ETF, you get to taste everything the market has to offer. For example, if you invest in an STI index ETF, you are essentially gaining exposure to the 30 largest companies in Singapore.

Read also: 4 Places to Spend Your First Pay as a Fresh Grad

Check out 27 Ways to Get a Job Before Graduation

4. Blue-chip stocks

One of the natural advantages that we have as an undergraduate is time. This greatly compensates for our limited knowledge in the financial market. The more time you have, the more room you have to let your investments compound. To take full advantage of the time you have, you should start investing. Among the different types of financial assets, stocks offer the best time-adjusted investment returns. In simple terms, the more time you have, the more returns you can derive out of investing in stocks.

One category of stocks that is recommended for undergraduates are the blue-chip stocks. The term blue-chip originated from the game of poker. In poker, blue chips hold the highest dollar value. As the name suggests, blue-chip stocks are also considered as stocks with the highest value in the stock market. They are known to be good investment assets for generating long term growth.

Safe and stable investment option

Blue chip stocks offer unparalleled stability with its stable earnings. Even if the market is experiencing a bear market, you can still be assured that your investment will not vanish the next day. Just imagine investing in DBS today. DBS will not vanish the next day because it has such an established presence in Singapore and the region. Another perk of investing in blue-chip stocks is their dividend-paying characteristic. Blue chip stocks typically pay a dividend to investors every quarter or semi-annually.

How to invest in blue-chip stocks?

There are two ways to invest in blue-chip stocks. The first and more traditional way is to invest through a broker. After you set up a brokerage and CDP account, you can start investing in stocks on the stock market.

Check out more about What Is the CDP Account For?

Read also: Beginner’s Guide To Choosing The Best Brokerage Account

Another way is to invest in blue-chip stocks through a regular savings plan. First, set up a regular savings plan account with one of the banks. Then, decide how much savings you want to commit every month. The committed saving amount will be transferred to your regular savings plan periodically and used to invest in a basket of blue-chip stocks. You can also choose to indicate which blue chip stocks you will like to invest in.

Check out Regular Savings Plan: Who Says Saving Has To Be In Your Savings Account?

Read also: Which Regular Savings Plan Is the Cheapest?

5. Small-cap stocks

If you feel confident about your financial knowledge, you can take one step further by investing in small-cap stocks. Unlike blue-chip stocks, small-cap stocks are typically riskier due to their smaller stature. Small-cap stocks also come with greater uncertainty as their management and business model is less proven. Thus, you will need to put in more effort into doing your research and due diligence before you commit into investing.

Higher risk, but higher reward

But with greater risk comes greater reward. Small companies are able to generate much larger growth rates than blue chip companies. A small company is able to double its profits but a blue chip like Singtel can hardly increase its profit by 10%.

Another advantage of investing in small cap stocks is the potential of discovering gems. Small-cap stocks fly under the radar and hold great potential for those who are seeking for undervalued stocks.

However, do not treat small-cap stocks as a get-rich-quick scheme. Also, ensure you’ve put in end-to-end research (reading books and articles, consulting financial experts, etc.) to have complete clarity before taking any investment decision.

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Disclaimer: This article is strictly for general information purposes only and reflects the views of the author. Bankbazaar Singapore won’t be liable in any way for damages incurred using any information shared in this article. Investments are subject to risks, so you’re advised to read all documents carefully and consult your financial advisor before taking any investment decision.


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