6 August 2012
Editor, Forum page
I agree with Mr. George Lim "Wrong to encourage heartlanders to
play the stock market" (ST 6 August) that heartlanders should not speculate
in the stock market. However, I wish to point out that there is a difference
between speculating and investing for the long term.
Research studies have shown that the investing in equities produce a higher
return, over the long term, compared to investing in bonds or in bank deposits.
The risk of the stock market can be mitigated through diversification,
investing for the long term (to average out the good and bad years) and
dollar cost averaging (i.e. investing in small amounts over a long period of time). For
the long term investor, the daily fluctuation in the stock prices does not really matter.
The difficulty of selecting the right stocks can be overcome by investing in an
indexed fund, such as an exchange traded fund (ETF) that is available through the
Singapore Exchange. However, investors should learn about the different types
of ETF and choose an indexed ETF that has lower risk.
The low interest rate environment in Singapore has forced savers to look for better
alternatives to provide a modest return. Equities and property trusts should be considered
as they are likely to give a return that is better than inflation rate over the long term.
I discourage investing in life insurance policies as they do not provide an adequate long term
rate of return, due to the high charges and do not provide the flexibility in cash flow that may
be needed. However, it is all right to buy low cost term insurance to provide
life insurance coverage.
I support the effort taken by the Singapore Exchange and the investor's association to
educate heartlanders about investing in equities and investments in general.
Tan Kin Lian
Financial Services Consumer Association