As a novice in any investments, all these terms sound familiar yet foreign. That does not help when you have the intention to invest your monies but yet have a lingering thought that you might suddenly lose all that you have vested due to misinformation or misconceptions. So lets dive into the basic definitions of Bonds, Shares and ETFs in layman terms to reduce confusion and maximise clarity. 

Bonds – low risk

• Lending money to a company at a fixed or advised rate (E.g. 4% per annum) 
• Low risk to capital as coupon yield (returns) are calculated based on company’s ability to generate profits 
• Lower and Fixed Yield as compare to other higher risk investments. 
• E.g. Astrea Bonds IV(2018), V(2019)

ETFs (Exchange Traded Funds) – medium risk

• Professionally managed funds and partially tagged to the Index’s performance 
  • STI ETF tagged to Straits Times Index (STI) – STI falls —> STI ETF falls 
• Potentially higher yields due to the benefits of capital gains when share prices appreciate ($1 per share —> $1.20 per share) 
• Potentially greater losses if the ETF prices depreciate (E.g. $1.2 per share to $1) 
  • However, Since its tagged to diversified share counters, volatility is lower
• E.g. STI ETF, Nikko AM STI ETF

Shares – highest risk

• Literally purchasing of a part of a company (however minuscule you own) 
• Shareholders will be entitled too all announced dividends 
  • Share prices will be deducted to refund capital to share holders while maintaining your number of shares in the company
• Potentially higher yields due to the benefits of capital gains when share prices appreciate ($1 per share to  $1.20 per share) 
• Potentially greater losses if share price depreciate (E.g. $1.2 per share to $1) 
• E.g. Singtel Z74, Sheng Siong OV8 listed on the exchange

Low Risk or High Risk, Still Risk!

I agree that risk adverse personalities or people who simply have little liquidity will not be inclined to put their remaining assets at risk and therefore have said no to any forms of investments. Before we say no again, let’s look at how much risk is too much risk?

Younger people without much liabilities like loans, mortgages or bills to pay should be able to afford more risk to learn how to grow their wealth. This is because when you start investing at a young age, the capital you have to invest will also be less than when you are older. Hence there are no real downside if you do your homework and understand how to pick and buy investment products at a younger age. The best part about buying bonds and shares is that you only have to pay a small fee (around $27)!!!

Click here for more info on watchlist selection, calculating yields (profit) and managing investment risk.