SGX wants you to start small and end up rich. Me too.

Here's an article from one of SGX top honco on how you can start small and end up rich. It's as though he was ghost writing for me as I hold the same view too.

--- A Straits Times Article (25 Jan 2014) ---

INVESTING can take time and effort. Many people I meet in my role at SGX tell me that they are daunted by the market knowledge and attention to detail demanded by the investing process, and fear the risk of loss.

Many believe only retirees or the wealthy have the luxury of time needed to watch the market and time their investments accordingly. Inevitably and unfortunately, for many of these people, the easiest course of action remains inaction.

Investing doesn't have to be like this. While it is true that stock investing may have intimidated many retail investors in the past, barriers to entry have been lowered in many ways over the last few decades.

These days, it's possible to get started with as little as $100 per month in start-up capital and still access an impressive range of investment vehicles.

Start small, start early

So what can you do with just $100 per month? The case for investing can be explained by the process of accumulation and compounding: you can build a considerably higher investment portfolio because on top of your accumulated capital, your investment returns are reinvested and multiplied over time.

This is especially so if you start investing at a younger age. Over time, small but regular investments in the stock market can definitely add up to a much bigger nest egg.

To see how this principle works, let's take a look at the Straits Times Index (STI), the benchmark index for the Singapore stock market, which tracks the performance of the top 30 listed companies.

Most months of the year, a STI company distributes a dividend. If a dividend payment is reinvested, then that reinvestment will later receive a dividend, which can again be reinvested and so on, creating a compounding effect over time.

If you had invested $100 month in the STI for 240 months (or 20 years), your total original capital investment would have grown from $24,000 to $52,409 by the end of 2013, including capital appreciation and $15,188 in dividends received.

If you further re-invested the dividends into the portfolio along the way, your total portfolio would have been worth even more at $56,031 a total return of 133 per cent, or more than doubling your initial investment.

And to achieve over half a million dollars in investments, you would therefore need to start with $1,000 a month.

Practising safe investing

It's possible to reap the benefits of progressive investing without taking on too much risk.

A number of methods are available, including regular shares savings (RSS) plans, which are automated investment schemes that adopt the "dollar cost averaging" method.

These plans let you invest a fixed dollar amount every month instead of committing to buy a fixed number of shares.

If share prices go up, fewer shares will be purchased, and if share prices go down, more shares will be purchased. This means investors can build portfolios in a more cost-effective manner.

For example, more units in the STI would have been bought in the month of August 2013 when the STI ended at 3,028 than in the April when the STI ended at 3,368.

Currently, local banks POSB and OCBC offer their equivalents of RSS plans.

For as little as $100 per month, you can contribute to plans that allow you to invest directly in Exchange Traded Funds (ETFs) that mirror the market performance of the STI.

Alternatively, you can also use the plan to purchase shares in "blue chip" companies that have traditionally been out of reach due to high minimum capital required.

Good things come in small packages

One of the changes investors in Singapore will see this year is the reduction in the minimum board lot size from 1,000 to 100 shares.

For investors with lower disposable capital, this will make blue chip and high-yield investment stocks much more accessible.

It will also enable investors to build more diversified and balanced portfolios with the same amount of capital.

Personally, I hope it encourages young adults to consider investing in blue chip companies and ETFs earlier.

By combining the dollar cost averaging and dividend reinvestment methods, you can achieve meaningful growth and returns on your investments without requiring large sums of initial capital.

In short, starting small now can help you end big.

The writer is head of retail investors at Singapore Exchange.

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