Are you interested in learning about investing in equities but don’t know where to start? Our Easy Equities 101 Guide is here to help! This beginner-friendly resource breaks down the basics of equity investing. Whether you’re new to investing or looking to build your confidence, our guide provides the essential information you need to make informed decisions and start your investment journey. Dive in today and take the first step towards growing your financial future!
WHAT ARE EQUITIES?
Ownership in a Company
Equities represent a portion of a publicly listed company’s ownership, sold to the public through stocks or shares, rather than raising capital through debt via loans or bonds.
Share Price
Share price reflects the market’s judgment of a company’s value on a ‘per unit’ basis.
Market-Driven Prices
Share prices fluctuate based on investor demand, moving up or down depending on perceptions of a company’s — prospects or broader economic conditions.
No Guaranteed Returns
Equities are considered riskier because there are no guaranteed returns. However, the potential for high returns makes them an attractive option.
Liquidity
Equities are one of the most liquid asset classes, i.e. they can be easily converted into cash by selling the shares.
EQUITIES INVESTING: WHO IS IT FOR?
Equity investing can be tailored to suit a wide range of individuals, each with their own goals, risk tolerance, and investment strategies. Here’s a breakdown of different personas based on life stages, as one’s equity investing journey often mirrors the phases of their life:
20s – 30s (just starting out in career)
At this age, major life events happen such as starting a career, getting married and/or buying a home. These years bring about new financial responsibilities, but also the opportunity to build a firm foundation. With time on your side, one can afford to take a more aggressive approach to investing, allocating more to riskier assets. Aligning investment strategy with these life changes can have a significant impact on your long-term financial future.
Common equity investment strategies during this life phase – capitalizing on the advantage of time – include:
- • Diversify: Maintain a diversified equity allocation that fits your risk appetite to maximize wealth accumulation.
- • Consider Low-Cost Options: Consider low-cost implementation options like Index funds and ETFs, which replicate the performance of a benchmark rather than trying to outperform it.
- • Stay Disciplined and Informed: A blend of discipline, continuous learning and strategic diversification can help build a resilient financial future.
40s-50s (established in careers, stable income)
Entering 40s and 50s, the financial focus shifts toward balancing growth with risk management. These years, marked by peak earnings and rising responsibilities—such as advancing careers, children’s education and planning for retirement—require a cohesive strategy. As retirement nears, maintaining a growth-oriented portfolio through equities is essential, while gradually transitioning to more stable and income-generating assets becomes increasingly important.
Strategies to align investments during this stage of life as one balances growth include:
- • Maximise Growth Potential: In your early 40s, maintain growth potential of portfolio through an appropriate allocation to equities.
- • Stay Globally Diversified: Diversify globally across bonds and equities to achieve the optimal upside of equities/risk assets while minimizing downside risk.
- • Substitute Growth for Stability: As retirement inches closer, begin substituting part of your growth equity with high-dividend equity to build a stable income stream.
60s and above (retirement)
Retirement brings significant life changes, requiring an adapted investment strategy. With the shift from a regular paycheck to relying on savings and investments, careful planning is essential for financial stability. Healthcare expenses and long-term care costs also become a priority. Additionally, maintaining a desired lifestyle, whether through travel, hobbies or family time, demands thoughtful investment strategies. As retirement can last for many decades, the main focus for retirees is to protect their life savings and preserve wealth.
Common strategies to align investments during retirement:
- • Rebalance Portfolio: Safeguard your savings by rebalancing from equities to cash and fixed income, reducing exposure to high-risk assets.
- • Diversify to Minimize Risks: In Standard Chartered CIO office’s view, liquidity risk and concentration risk in single securities, sectors or industries are some of the risks that are no longer suitable for investors in their 60s and beyond. Diversify your investments across various securities, sectors and industries.
- • Implement Withdrawal Strategies: As retirement can last up to three decades or more, withdrawal strategies are as important as the investment strategy. Four common withdrawal strategies investors can consider are the fixed percentage strategy, fixed dollar amount strategy, income-only (without touching the principal) strategy, and the three-bucket strategy (allocating funds to immediate needs, intermediate stability, and growth-driven).
HOW DO YOU EARN FROM INVESTING IN EQUITIES?
Capital Gains
- • When a company grows and becomes more valuable, the value of its shares increases.
- • You can earn capital gains by selling a share for a higher price than what you originally paid.
- If demand for a particular share rises, its price typically increases as well.
- • In Singapore, capital gains are tax-free.
Dividends
- • Dividends are a way for companies to distribute profits to shareholders.
- • Profits not paid out as dividends are usually reinvested into the business.
- • In Singapore, dividend income is tax-free
COMMON SHARE CLASSES
Common shares
- • The most widely available type of share
- • Offers
- ○ One vote per share at shareholder meetings
- ○ The right to claim dividends
- ○ The right to claim assets after winding up (subject to priority of claims)
Preference shares
- • Entitles holders to preferred rights, typically higher dividends.
- • In exchange, usually confers no voting rights.
- • Often issued to associates of major shareholders or company employees.
Dual-class shares
- • Entitles certain holders to outsized voting rights.
- • More voting rights are typically given to founders and executives to help them retain majority control.
- • The public may accept diluted voting rights if they believe in the company’s growth prospects.
- • This share structure is commonly found in growth sectors, such as technology companies.
HOW DO CORPORATE ACTIONS AFFECT YOUR EQUITY INVESTMENTS?
Corporate activities, such as the following, can lead to significant changes that impact share prices:
Dividend Announcements
- • Announcements regarding dividend policies are usually positive for share prices.
- • Dividend cuts can negatively affect prices if shareholders interpret it as a sign of the company’s poor performance.
Share Splits
- • A share split involves dividing existing shares, often splitting each share into two.
- • The total market capitalization of the company remains unchanged, but the price per share decreases proportionately as the number of shares increases.
- • The lower price per share makes the company’s shares more accessible to a wider range of investors.
Rights Issues
- • A method for companies to raise additional equity by offering existing shareholders the opportunity to purchase new shares at a discounted price for a limited time.
- • The price per share decreases in proportion to the number of new shares issued.
- • The effect on market capitalization depends on market sentiment and investor response.
Mergers & Acquisitions
- • Involves acquiring, merging with, or disposing of another company.
- • The share price of the target company typically increases (as the acquirer often pays a premium) while the acquirer’s share price may decline due to the premium paid.
- • In the short term, the share prices of both companies may experience volatility.
HOW ARE PUBLICLY LISTED SHARES BOUGHT AND SOLD?
Publicly listed shares are traded on stock exchanges. For Singapore-listed stocks, this would be the Singapore Exchange (SGX), which is split into two boards: the Mainboard and Catalist. Other popular international exchanges include the New York Stock Exchange (NYSE) and the London Stock Exchange (LSE).
Shares are bought and sold in ‘lots.’ In Singapore, one lot typically consists of 100 shares.
There are different types of buy and sell orders. Two common examples are:
- • Market Orders: These orders are executed at the prevailing market price at the point of execution.
- • Limit Orders: Limit orders are valid up to the limit execution price. For example, if you are placing a limit order to buy at $10, your buy trade will not be executed at a price above $10. If you are placing a limit order to sell at $10, your sell trade will not be executed at a price below $10.
Before you can buy or sell publicly listed shares, you must open a brokerage account, such as with Standard Chartered Online Trading.
You can also indirectly invest in shares through pooled investment vehicles, such as unit trusts.
Equities make up a significant portion of many successful investors’ portfolios. While they carry higher risk, their potential for higher returns compared to other asset classes means that, with careful selection, equities can be a good investment to help achieve your long-term investment goals.
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This article is brought to you by Standard Chartered Bank (Singapore) Limited. All information provided is for informational purposes only.
