Folks, we’ve made it this far: we all agree we should invest, we know a little bit about stocks and bonds… now let’s get into the details of how to actually get started.
Like with everything in 2020, there are endless platforms out there that make it easier (and cheaper) than ever to invest. We’re going to go over some of the options but it’s worth keeping in mind that not only are people’s portfolios going to look different, HOW we invest also varies a lot from person to person. My style might not work for you and that’s cool, as long as you’re making an informed decision.
We do hope, ultimately, that this will make it less scary to try investing a bit yourself, even if you plan to outsource the majority of it.
Quick summary before we begin:
Individual brokerage accounts give you full control over your investments and let you trade stocks and ETFs very affordably, but also require some decision-making and the occasional check-in
Robo-advisory platforms are a cheap, low-effort way to start investing (great for beginners) but don’t give you a lot of say in the composition of your portfolio
Tax-free retirement plans offered by your employer can supplement other investments and are a no-brainer if you’re going to be based in the same country for a while
Personal financial advisors offer customized services and hand-holding but come at a higher cost
Individual Brokerage Accounts
As the name suggests, these are accounts where you’re individually managing your own investments via an online “broker” who helps access the stock exchange (or bond market) to buy and sell for you. The decision of what to buy and when is entirely yours.
This option is the most involved you can get with your money and gives you full control over your portfolio. While it sounds intimidating, it’s really not that complicated (promise!). Most brokers don’t even charge a monthly fee if you’re below 25 or have a certain minimum amount invested.
For those based in the U.S., Fidelity and TD Ameritrade are well-priced and easy to navigate. In the U.K., Saxo is well-known. If you’re in Asia (or anywhere, really) Interactive Brokers is one of the cheapest options ps. I use it too! For my Indian brethren, Zerodha is a popular portal. Finally, most banks also offer brokerage services: this option can help streamline your checking, savings and investment accounts in one place but keep in mind it’s not *as* cheap as using an online broker.
That’s just the tip of the iceberg; there are literally hundreds of brokers and many that are country-specific… you’ll need to google/ ask around a bit to see which platform works for you. Opening an account, however, is pretty straightforward and can be done entirely online. Once your account is open, all you need to do is make a bank transfer to fund it and you’re all set to start investing!
Robo-Advisors
No robots involved, but these are basically automated financial advisory services. If opening your own brokerage account and making investment decisions is too daunting, robo-advisors are a solid option and comparable in cost. Hurrah for the internet!
As far as passive investing goes, this is as easy as it gets. There are loads of options (again, google is your friend) but some popular ones include: Kristal in Asia, Wealthsimple and Nutmeg in the U.K. and Betterment in the U.S. Banks (DBS in SG, HDFC in India) are also expanding their offerings in this space, so it’s worth checking to see if your existing provider has a robo-advisory platform.
After you open an account, you’re usually asked to fill out a few questions about your risk appetite, investment time horizon and savings goals. The platform will then automatically invest your money into ETFs, stocks and bonds that match your choices. Different robo-advisors offer varying levels of flexibility for how involved you can get, but most offer a sliding scale. These are a great low-cost, low-effort option for beginners.
Tax-Free Retirement Plans
These should go hand-in-hand with whatever else you’re doing to invest your savings, as they let your money grow tax-free until you retire. No matter where in the world you are, most employers usually offer some form of government-sponsored tax-free savings account you can invest in as an employee.
Note, for any expats reading this: if you’re working outside your home country, you’ll need to do a little more research on whether these accounts are worth participating in abroad (or if you’re even allowed to as a non-resident). In most places, they tend to come with “early withdrawal” penalties and depending on where you are, may not always be easy to transfer/cash out when you move.
In Hong Kong, you have the Mandatory Provident Fund (MPF). In the U.S., 401(k)s or IRAs, ISAs in the U.K., CPF in Singapore and PPF in India. That’s a lot of abbreviations, but they work in roughly the same way: your employer sets up a retirement plan with a provider of their choice (often some of the same names mentioned earlier, like Fidelity or Vanguard) to manage their employees’ savings.
There’s usually a minimum/ maximum amount you’re allowed to contribute per month, which will be deducted from your salary automatically and invested for you. You don’t pay taxes on this $$ and any investment growth is also tax-free. Many employers will match your monthly contribution (free money!), so it’s an added incentive to participate.
Making sure you’re enrolled and contributing is super easy; usually all you need to do is opt in with your firm. We’ll dig into how to manage these accounts at a later stage, as well as options for tax-free savings if you’re self-employed.
Personal Financial Advisors
Basically the OG, human version of a robo-advisor. You can find a financial advisor in a number of ways, including through your bank if you invest with them. You receive personalized service in the form of emails, phone calls, in-person meetings - whatever you want, but it comes at a higher cost than the options mentioned above.
Your financial advisor will walk through your goals and risk appetite with you in order to create a bespoke investment portfolio. However, there is no guarantee of performance despite the higher fees. These services are generally used by high net worth individuals who don’t want to manage their own money and/or want access to more complex and exotic investments.
While a popular option, it’s unlikely to apply to most of us just starting out. Of course, if your bank has a low-cost program there’s no harm in checking that out.
Keep in mind that you don’t have to 100% commit to any one of these methods - you can mix and match! Maxing out your contribution to a tax-free retirement account and investing the rest yourself is a popular approach, but at the end of the day it’s entirely up to you. The aim is to start out, get comfortable and ramp up from there.
Ideas for next time? How to select stocks and ETFs, when to invest, portfolio diversification… let us know!
Note, these posts are intended as an educational resource and to encourage participation in the stock market. None of our opinions should be taken as investment advice, please speak to a professional for that :)
Say I have 100$ in my savings account, how much should would you recommend I put into my online brokerage account to start investing with?