Here’s how to invest with $10,000

$10,000 is the magic number that most people start to ask questions about what to do with their money – in this post, I will share what I would do with ten grand in the bank.

It all begins with a plan

There are many ways one could invest or save for the future. From ultra-safe bank deposits to riskier or speculative investments like cryptocurrencies or commodities like oil, silver or soybeans, the choices are endless and frightening to the uninitiated. The goal is to invest consistently with a great strategy that grows your wealth in both good times and bad – by letting time and your money do the work for you.

Know your investment horizon

Many people invest for the decades or for retirement, but some people invest for the short or medium term with the aim of quicker profits. With a longer investment horizon, we are able to take riskier bets in our investment decisions and hence, potentially earn a higher return. That is because the multi-year trend for stock markets is almost always upwards. Of course, history does not always repeat itself, but it almost certainly rhymes. For those saving for retirement, time is indeed your best friend. According to Robert Shiller, the probability of long term total returns on the S&P 500 is almost 100% if we take a 20-year timeframe!

Know your risk appetite

What would you do if your $10,000 loses half its value in a week? Do you panic and sell and cash out what you could still salvage? Or sit tight and wait for the market to recover? Holding out a recession is sometimes easier said than done.

When choosing riskier investments, they can lead to greater and wilder fluctuations in asset values with time, causing great anxiety and stress for those who cannot accept losses. Everyone is different, and sometimes you might only know your true risk appetite in a bear market. The worst thing that can happen is you cashing out or selling at the bottom of the market!

Executing the plan

I’ll illustrate how based on my personal investment horizon and risk appetite, I’d allocate the funds.

Let’s say my investment horizon is twenty years to allow me to retire at 45. With that in mind, my proposed asset allocation would be 80% equities and 20% bonds.

With the asset allocation methodology in place, I’d select funds (or ETFs) that help me fulfill my goal. For me, if you’ve read my earlier posts on asset allocation, I’d allocate my equities component into a mix of a global/world ETF and a local/Singapore ETF. My bond fund of choice would be a mix of global corporate bonds and local government bonds.

Assuming a zero-cash portfolio:

International Component (50%)

VWRD – $4000
LQDE – $1000

Singapore Component (50%)

STI ETF (ES3 or G3B) – $2000
Singapore REITs – $2000
SSB – $1000

Behind the portfolio

The portfolio is a simple equity/bond mix in the ratio based on my risk appetite (80/20 in this case) and then further broken down into international and local components (in any preferred mix – with the international component subjected to FX risk). In my case, I chose 50/50.

The reason for an international corporate bond in my portfolio is due to the higher liquidity and attractive yield. The 20% SSB acts like a cash buffer rather than a bond as the price of the issue does not fluctuate and is redeemed at par.

Some might argue why I am overweight REITs as the STI ETF already has REITs built in. I personally like income and they offer a good diversification strategy to an overly equity-tilted portfolio.

That’s it!

It’s quite simple actually, and robo-advisors have actually made this whole process above simpler for the average investor (although you’re expected to pay higher fees). They help you determine your risk profile, investment horizon and then allocate your funds accordingly to an asset allocation framework that keeps your portfolio diversified.

If you’re looking to get started with a Roboadvisor, I recommend StashAway for their ease of use and brilliant interface. Check it out using my referral link here and we both get $10,000 managed for free for six months!

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