Chinese New Year brings joy, reunions, and of course—hongbaos!
If you received a red packet this festive season, you might be wondering what to do with the money.
Instead of spending it right away, why not put it to work and grow it for the future?
If you’re a parent, hongbao money is also an excellent way to start your child’s investing journey.
By setting these funds aside for long-term investment, you can teach valuable financial lessons while building your wealth.
Here’s how you can multiply your hongbao money by investing in the Singapore stock market.
Why Investing Your Hongbao Money is a Smart Move
Hongbao money is typically extra cash that you don’t rely on for daily expenses.
That makes it perfect to invest for the long term.
Unlike savings accounts, which offer low interest rates, investing in stocks allows your money to grow faster through capital appreciation and dividends.
The key is long-term investing—putting your money in strong companies and letting time and compounding do the work.
If you leave your hongbao money invested for years, you should see significant returns.
Let’s take an example:
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The Straits Times Index (SGX: ^STI), which tracks 30 of Singapore’s largest companies, has delivered an average annual return of around 6.6% (including dividends) since inception in 2022 up till 30 June 2024.
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That means if you invest S$200 from your hongbao today and reinvest the dividends, in 20 years, your money could grow to over S$800, assuming similar returns continue.
Now imagine doing this every year with your hongbao money—the gains can be even greater!
Where to Invest Your Hongbao Money?
There are many ways to invest in Singapore stocks, but here are two simple strategies to get started:
1. Invest in the STI for Broad Market Exposure
The Straits Times Index (STI) includes top companies like DBS Group (SGX: D05), Singapore Airlines (SGX: C6L), and CapitaLand Integrated Commercial Trust (SGX: C38U).
By investing in an STI Exchange-Traded Fund (ETF), such as the Nikko AM STI ETF (SGX: G3B) or the SPDR STI ETF (SGX: ES3), you gain exposure to all 30 companies at once.
These ETFs provide:
Diversification – Reduces risk by spreading your money across different sectors.
Dividends – You earn passive income from the dividends of the top 30 companies.
Steady Growth – The STI has historically delivered solid returns over time.
2. Invest in Singapore’s Blue-Chip Dividend Stocks
Another option for investing your hongbao money is to put it into blue-chip stocks—companies with strong fundamentals and a history of consistent dividend payouts.
For example, DBS Group, Singapore’s largest bank, offers stability, steady growth, and attractive dividends.
It has a solid track record of increasing its payouts, allowing investors to benefit from compounding returns over time.
DBS delivered a share price gain of 92% over the past five years, and this does not include the dividends that the lender paid out over this period.
Another strong choice is CapitaLand Integrated Commercial Trust, one of Singapore’s largest real estate investment trusts (REITs).
Owning a portfolio of malls and office properties, it provides a stable dividend yield of 5.7%, making it an excellent option for passive income.
By reinvesting the dividends earned from these blue-chip stocks, your hongbao investment can grow even faster.
The Power of Compounding: Growing Your Wealth Over Time
One of the biggest advantages of investing early is compounding—where your earnings generate even more earnings over time.
Let’s say you invest S$300 from your hongbao every year and achieve an average return of 7% per year:
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In 10 years, your hongbao fund could grow to S$4,144.
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In 20 years, it could become S$13,595.
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In 30 years, you’d have over S$33,000—all from just a small annual investment!
The earlier you start, the bigger the impact.
Get Smart: Start Small, Think Big
Investing your hongbao money doesn’t require large sums—you can start small with an ETF or a single stock. What’s more important is consistency.
Whether you’re a parent setting aside your child’s hongbao for their future or looking to grow your own wealth, making investing a yearly habit can lead to significant long-term gains.
So this Chinese New Year, instead of spending all your hongbao money, consider investing a portion of it. Your future self—or your child—will thank you for it.
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Disclosure: Joanna Sng owns shares of DBS Group and CICT.
The post How to Multiply Your Chinese New Year Hongbao Money with Smart Investing appeared first on The Smart Investor.
