Should you invest your bonus in the stock market?

December to March is usually the period where working people get their yearly bonuses. How do you use your bonus?

Smaller Bonus this Year

This year, most foresee that their year end bonus will shrink.

The two-day poll of 100 people, conducted in both the Central Business District and heartlands, found that the majority of Singaporeans foresee smaller bonuses this year compared to last year.

Almost 75 per cent polled said they believe their bonuses will shrink, which is a prediction seconded by human resource managers.

– SPH

Like wise, I do not expect to receive much special bonus this year. Its likely to remain lower than norm consider the firm is hit with some bad results during the quarters.

Part of the overall compensation

I do see that your annual bonus be part of your overall compensation package. And as such it should be manage as a total annual package instead of treating it as something of a windfall.

The fact is that folks that work in Keppel will get their 7 month bonus while some companies will struggle to gain any. Yet the workers in Keppel may each be paid much much less than the standard monthly pay of bankers who will not get much bonus.

Reward yourself but save up for the rainy day

I used to be in the frame of mind that you should always save as much as possible. But life goals change and for some people they really work hard for it.

Rewarding oneself by going for a good holiday, buy some gifts for parents and loved ones are good ways to recharge your batteries and share the joy around.

Sometimes share and you will received more. However, do it in moderation. For some people, they may feel that their bonus is small, but when they add up in 10 years, it may be quite a substantial sum.

Pay off debts

Some folks might be incline to put these substantial amount to the stock market, however, I would suggest assessing the debts that you currently hold to see whether you are able to reduce them.

You can take up debt clearing methodology like Debt Snowball to substantially reduce the amount of interest paid.

Your returns from the markets may not be certain, but by paying down debts, you are certain that you will be reducing your outflow, which is indirectly a gain.

Get an education before investing

Some of my friends would rather put their money into the stock market and learn from it directly. There are pros and cons to it but I do see it as more cons.

The end state is they normally do more harm themselves to their portfolio rather than good.

Why not pick up $100 worth of books or education session? treat that as a commission. The difference is that you arm yourself with something that you can use over and over again ad possibility prevent you from making bigger mistakes.

An annual dollar cost averaging

Should you make it this far and still think it’s a good idea to invest your bonus then all the best to you. My take is that you do not have to split the amount out. If your bonus is rather consistent, what happens when you dump a whole lump sum is that if you buy at the market peak your next bonus may be bought at a discount.

Why I would not invest all my bonus

I made a conscious decision not to save as much of my bonus as possible. I made a 10 year goal that I may talk about in a later article.

The truth is that your life goals change and when your income progress to a certain state, you need to set aside money for other goals and that you need to share the wealth around more.

Its not easy to adjust but 30% of it will go to my family, other objectives and higher education.

How do you guys intend to use your bonus?

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