Investing in the stock market

6 August 2012 

Editor, Forum page

Straits Times

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
President
Financial Services Consumer Association