How To Start Investing: Financial Advisors Gives Their Best Advice!

Have you wondered what to invest in? Reading up on investment with complex jargon and wall-street slangs​ beyond comprehension may frustrate you...

That's why in this post, I'd be sharing with you some findings on how to prepare beginners like yourself for investment!

In addition, I've added tips from financial advisors.

Are you also afraid of investment risks?

I remember hearing this saying from Steve Jobs, "Everyone wants to go heaven .... but...  no one wants to die to get there"

I guess it is the same for investing. Everyone wants gains and profits, but no one wants to endure paper losses. 

With the kiasi  (scared to die​) mentality ingrained in many Singaporeans, I know many of you must be afraid of the risks associated with investing and this is actually supported by this psychology theory called the Loss Aversion.  

Loss aversion implies that one who loses $100 will lose more satisfaction than another person who gain satisfaction from winning $100.

This basically means people would feel more sad from their loss, much more than happy when they gain, which explains why you may feel a little kiasi.

How to conquer your kiasi-ness!

1. Start small and into something lower risk

No matter how old are you, always take baby steps when you're a newbie to anything!

Don't just look to invest into the Singapore Savings Bonds. That has no risk and does not help you build wealth.

Lower-risk products can a retail bond like the 5​Y SIA bond that was launched a few months ago. Check SIA 3.03% 240328 

It can also be something that is diversified like First State Bridge Fund. ​While a typical equities-based fund can incur losses in ​market downturns​, but because it has an even mix of bonds and equities, it is less volatile than buying individual shares of a company.

You could check our post on First State Bridge here

2. Look for portfolios

There's this Everlasting Portfolio by The Motley Fool which comprises of real-money investments and the best investment strategies!

Read more here: https://www.fool.com/legal/terms-and-conditions/motley-fool-everlasting-portfolio-terms-and-conditions-service/

Alternatively, you can explore ROBO-investment portfolios that is gaining popularity in recent times and we have this article here on the pros and cons. 

Read more here: https://www.theastuteparent.com/2018/12/pros-and-cons-of-a-roboinvestment-portfolio/

3.  Be ready for an achy breaky heart

You've heard it, investment losses can not only break your wallet, but your heart as well 🙁 So always be prepared to let go of that emotional baggage. 

Experiencing paper losses in your investments does not necessarily mean you made a stupid decision. Investment returns are never a straight line up. It is not the same as interest you collect into your bank account.

If you can't do that, read the next section!

4. Listen to the right voice

Always get advice from the right and experienced people. If you are starting out also, learn from someone who has years of investment under his/her belt. Alternatively, hire the right financial advisor. 

When bitcoin prices were skyrocketing, it was hard to ignore the FOMO (fear of missing out) felling. And when prices crash, it was hard to ignore the negative news on the media.

It is importantly to not make rash decisions from investment tips from people who are have no track record. Be it your mum, dad, sister, brother, girlfriend, boyfriend or even god, they may give you love but certainly not investment gains. 

3 STEPS to start your investment journey!

Step 1: Open a Brokerage and CDP account

You'll have to open a brokerage account to gain access to the securities exchange where you can buy and sell stocks.

Image credits: https://blog.seedly.sg/the-ultimate-cheatsheet-cheapest-stock-brokerage-in-singapore/

If you want to hold the shares in Central Depository (CDP) account where its free and you can freely trade it away with any brokerage, you may open it online.

You can read the article below to learn the new method in opening a CDP account.

https://www.theastuteparent.com/2019/05/open-cdp-account-online/

Step 2: Study investment strategy

To become a successful investor, you'd need to commit time and effort to learn a form of investing. Anything that is meaningful takes time to master, agree?

Here are a two examples which both require you to know how to read company statements:

A) Value Investing

Warren Buffett is the king of value investing. The idea is to actively seek out the stocks that the market has undervalued vs the "intrinsic value" of a good company. 

​For example, he ​is known to be invested into companies like Coca-Cola, Kraft Heinz, Apple. And this isn't even the tip of an iceberg of what he owns. This is like just an ice cube worth on that iceberg of companies he is invested into.

B) Growth Investing

This form of investment in simplistic terms focuses on finding companies that display signs of growth that are of above-average.

Defining what is above average growth requires real study. But as you will see below, it is not easy. Is UBER a growth company?

Step 3: Set Financial Goals

It is important to set your financial goals by setting savings and investment targets. Besides setting goals, you have to stay committed in achieving them! 

We've an article below on right level of investment which can help you understand better how to set goals and how to determine how much to invest.

https://www.theastuteparent.com/2019/02/right-investment-level/

The next section is on ​5 tips from financial advisors that you can directly adopt or look for when you hire one.

Tip 1 from Josh Tan: There's no shame in diversifying as a beginner.

It is true that when you concentrate your investments, you will get higher returns. That's how billionaires built their wealth. Check what Warren Buffett has to say:

But you are new to investing. You need time to understand what you are doing.

Diversifying suits you far better now. NOT everybody is destined to become an investment guru. That's an insult to the greatness of Warren Buffett.

A blue chip company can become bankrupt or suffer massive losses. Check NOBLE GROUP.

But an ETF or a fund with a basket of shares technically will never become $0.

If you understand it, you'd sleep well and be more patient with your investments.

Aim to compound 5-10%p.a investment returns. It is often sufficient to get you to your investment goals.

Tip 2 From Josh Tan: Averaging is a less scary way to start

Dollar cost averaging is not a new concept by any measure

While there are studies that show lump sum investment wins 2/3 of the time over dollar cost averaging, I still advocate it as a way to help you get started.

Investing $1,000/mth is a much easier decision than investing $30,000 lump sum.

Look to get started more than second guess when is the best time to invest. ​Focus on time in the market​ ​is better than timing the market. 

Tip 3 Josh Tan: Be patient as you start investing

If you require that savings for a home upgrade next year, it is best to keep it in your bank account or short term plans and not use it for a 1-2 year investment.

Whether you are new or experienced, investment returns take time. Good things need time to hatch.

From my experience with private clients, investments from SRS accounts have done well simply because there is no immediate use for it and the investor is far more patient. 

Tip 4 From Alvin Teo: Learn to filter out the noise

As you read about investing and/or finance news, you will be scouring the world wide web and you will realise very quickly that there is a lot of information and it can be overwhelming and confusing.

News outlets tend to sensationalise topics and the market might react more drastically because of this.

The most important thing is to build strong foundation of knowledge for yourself so that when you come across articles, you will have a sense of whether the article makes sense to you. 

Tip 5 From Alvin Teo: ​Always save for rainy days and only invest spare funds

I cannot stress this enough!

New investors tend to get carried away by rising markets and forget to maintain a healthy level of liquid cash in emergency funds and savings. 

A good soldier does not empty all his bullets if he cannot clearly see the enemy in sight; the exact same logic applies for investing!

​There will always be good stocks/investments to buy, no need to rush into things only to realise you've made catastrophic mistake and it is too late to recover from.​

Conclusion

You can get started by reading up adequately and giving yourself a chance to make mistakes that you can EASILY recover from.

If you are too busy, them engage someone qualified to help you get started in investing.

Ensure that fees have been declared to you fairly. 

Work with someone you feel has your best interest at heart and dedicated to this topic. It is like having a fitness coach to get you to the next level.

*Investment products and services suggested in post are used as examples and please ensure you do your due diligence on them

If you would like to understand more on setting up your own investment portfolio, email to Josh.tan@promiseland.com.sg or click on the WhatsApp button below.