How My Friend Started Investing with $12k

This post is detailing how one of my close friends, Daniel, started investing with $12k with no prior investment knowledge. I would be sharing his investment portfolio and background. It started in March when he developed an interest in investing after I told him that his money in his savings account was depreciating due to inflation and he should invest it instead to get higher returns. I advised him to read up more about the various investing strategies first and decide for himself which type of investor he wanted to be. Daniel researched and learned online from various sources including books like 'Rich dad, Poor dad' and 'The Intelligent Investor' (he recommends new investors read up these two books before they start their investment journey). After reading up for a couple of months, he decided that he wanted to be a dividend investor as he liked the idea of passive income and low-risk investments (compared to growth stocks). Upon hearing this, I introduced him to Singapore's famous dividend stocks -- REITs and Banks. After learning more, he was very excited as he realized that he could put his money to 'work' to earn more money for himself and it wasn't as complicated or difficult as he thought. 

 

Background of Daniel:

-21 years old 

-Currently still pursuing a degree

-No significant debts

-No prior investment knowledge

-$12k in a savings account (Savings from young + NS pay + Ad hoc Jobs)

 

I suggested to Daniel to split his money and buy 3 blue-chip dividend stocks --2 REITs and 1 Bank as a way to diversify his portfolio and reduce his overall risk. I told him to focus on industrial REITs and avoid retail/hospitality REITs for the time being due to the COVID situation. Industrial REITs have proven to be resilient in the current economic climate while retail/hospitality REITs have been hit hard and had their dividends cut substantially. On the other hand, banks like DBS and UOB were not significantly affected by the COVID situation and have managed to keep their dividend rates and balance sheet strong. Daniel agreed and purchased $4k worth each of Ascendas REIT, Maple Industrial Trust, and DBS bank in June.  

 

His Current Portfolio:

Portfolio Value: $12k

 

Average dividend yield for Ascendas REIT (past 5 years): 4.7%

Average dividend yield for Mapletree Industrial Trust (past 5 years): 4%

Average dividend yield for DBS Bank**: 6%

Average dividend yield: 4.9% 

Average yearly returns on $12k: $588

Average monthly returns on $12k: $49

 

Daniel's investment portfolio will generate $588 yearly as passive income at a 4.9% rate. This may seem small but it is significantly more than what he will ever receive in his savings account***. Overall, Daniel is very pleased with his current investment portfolio and looks forward to adding more high yield dividend stocks to it in the future when he starts working. He is extremely glad that he put in the effort to learn more about investing instead of letting his money rot in his savings account. 

Conclusion

The purpose of sharing Daniel's story is to encourage fellow young Singaporeans to start investing. I wanted to show that investing is not as difficult or daunting that people put it out to be. All you have to do is put in some effort and be willing to learn. There are many free resources available online or in books for you to learn from. Also, it's good to have some savings but savings will never make you rich. Investing is a life skill that you must learn at one point in your life to protect your money from the effects of inflation and for you to achieve financial freedom one day. 

 

TLDR: It is not difficult or impossible for a regular person to start investing, you just have to start and be willing to learn. 

 

*Names have been changed to ensure confidentiality 

 

**DBS Bank changed its strategy to higher dividend payouts to shareholders since 2018. It paid out a dividend yield of 8.06% (2018) and 7.12% (2019). Its expected dividend payout for 2020 is 6%. However, due to the COVID-19 situation, the Monetary Authority of Singapore (MAS) has recently asked all banks to lower their dividends for FY2020 to preserve capital as a pre-emptive measure. DBS dividend yield is estimated to be reduced to around 4% this year. Blue-chip bank stocks are still a good buy for the long run especially since most banks' share price has decreased as the results of a recent selloff by investors due to the announcement of the dividend cuts by MAS. You can find out more about the MAS announcement here.

 

***His savings account was the Standard Chartered Jumpstart Account which recently cut its interest rates to 1%. He would have received $120 yearly ($468 less compared to his current investment portfolio) or about $10 per month. You can find out more about Standard Chartered Jumpstart Account here.