The world of
investing is now much more dynamic than it used to be, especially in a country
like Singapore. First-time investors of all ages have myriad opportunities to invest
in the different asset classes, and they have so many choices for which
investment platform to use.
But no
matter how different the environment is, some investment strategies that are
considered "old school" still hold true. Below is a list of six investment-related
tips that are classic for good reason. Consider trying these for yourself,
especially if you're about to make your first foray into investing for the
future.
Determine Whether You Want to Be an Active or a Passive Investor
Before anything
else, it's a good idea for you to decide what kind of investor you want to be.
Do you see yourself as inhabiting the role of an enterprising investor, or a
more defensive one? Is it your ambition to make money through high-risk,
high-reward investments, or are you looking for a more hands-off way to manage
your nest eggs?
Your profile
as an investor determines what types of investments are best for you. An active
investor who wants to master the ins and outs of the market can get into
securities like stocks and bonds. In contrast, a passive investor can put their
money into an investment vehicle like a high-yield time deposit account or a
money market fund and simply let their money accumulate interest without
touching it. Regardless of whether you choose active or passive investing, make
sure your choice aligns with your needs and that you have enough time and money
to dedicate to your pursuits.
Preserve Capital First, Then Try to Grow It Later
A second
principle for investing that you should consider is one that's borrowed from
Benjamin Graham, more famously known as Warren Buffett's investing mentor. Part
of Graham's philosophy for investing involves finding ways to preserve capital
first. This should take precedence before any attempts to make that capital
grow.
It makes
sense if you put it in simple terms: you'll need foundational resources for
your investment journey. After all, you can't grow wealth that you don't have.
In your first year as a fledgling investor, make it your priority to build and
preserve your capital before making any risky decisions to grow it.
Aspire to Build a Well-Diversified Investment Portfolio
One of the
most timeless pieces of advice that you'll ever hear about investments is to
avoid putting all your eggs in one basket. In the parlance of your investing,
that means not being too reliant on one type of asset to be your chief
moneymaker.
Your goal
should be to build a diverse portfolio so that you can earn from multiple types
of investments, as well as offset the risks of investing in
cryptocurrency and
other speculative assets. Take it from older, more experienced investors who'll
recommend this approach in the long term: assemble a well-diversified portfolio
that will both maximise your gains and cushion you against risk.
Allot 10% to 20% of Your Earnings to Investments
If you've
generated enough income to start investing, you may be wondering exactly how
much of your earnings to dedicate to your investments. Your parents, business
mentors, and other investing experts that you know will likely give you the
same benchmark, which is between 10% and 20% of your pre-tax income.
The 10% to
20% allotment is considered a "sweet spot" because it won't require you to
tighten your belt on your daily spending just so that you can invest. At the
same time, it will be enough money to reap significant long-term rewards from.
Know Your Margin of Safety
In
investing, the "margin of safety" is the principle of buying a security when
its market price is significantly below its intrinsic value. When you apply a
margin of safety to a particular security, that means you're investing in
something that has less downside risk compared to one that you'd buy at a price
higher than its value. This gives you a cushion in case your estimate on how
much you'd earn was a little off the mark.
The "safety"
in this equation, or how much leeway you want between the actual value of your
asset and your break-even point, really depends on you. But it's important to
be able to quantify what your margin of safety is before you start investing in
securities like stocks and bonds.
Base All Investment Decisions on Logic, Not Emotion
Last and
perhaps most classic of all, never let emotion colour any critical investment
decisions. This tip is worth remembering right now because a lot of fledgling
investors tend to act based on hype. If there's one thing that's precarious
about today's investment environment, it's that too many people want to move
their money quickly and follow what their peers are doing.
Always keep
a cool head when it comes to managing your investments, and don't make any
major investing decisions when you're in a state of boredom, panic, or
excitement. Remember to examine the facts, analyse emergent patterns on the
price of each asset, and buy or sell when it makes logical sense for you to do
so.
Final Words
In summary,
make sure to revisit these six valuable tips throughout your investment
journey:
- Define your
investment goals, investment approach, and investment horizons. This
differs from person to person.
- Preserve your wealth
before making any risky decisions to grow it.
- Be aware of the risk
of trading cryptocurrency and related assets, and build a diversified
investment portfolio around mitigating particularly risky investments.
- Decide on a good
percentage of your earnings to invest.
- Determine your margin
of safety when you purchase new securities.
- Don't let strong emotions get in
the way of sound logic when you're making investment decisions.
As they say,
old is gold. Heed these timeless tips on investing and let them help you build
your personal wealth.
