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6 Things To Consider When Investing

Investing is crucial if you want to increase your money. To make sure you are making the right choices and positioning yourself for financial success, there are a few things you need to do before you start. Once you get going, there are a few rules that might help you maximize your gains and minimize your risk.

Here are 6 things to consider both before and during an investment. 

Prior to beginning an investment

1. Make a financial assessment

Take the time to sit down and consider what you wish to accomplish with your investments because investing should always be done with a purpose in mind. You can have a number of objectives in mind, and they might differ in how quickly you’re looking to achieve them.

Saving money for a major purchase, like a car or wedding, may be a short-term goal. Saving money for your child’s education could be a medium-term goal. And a common long-term aim would be to be well-prepared for a pleasant retirement.

2. Determine how much risk you can tolerate

You must choose the appropriate investment items based on your risk tolerance.

High risk investments typically come with a greater danger of losing some or all of your money than low risk investments do. Lower risk investments often yield lower returns but have a lesser danger of loss.

Your risk tolerance will be influenced by a number of variables, including your age and how long you want to work toward your goals, your financial obligations, how much money you’re investing, and your personality.

Never expose yourself to more risk than you can handle. For individuals who don’t want to invest at high risk, there are always low risk possibilities.

Make sure you have enough money set aside for an emergency fund before you begin investing. An emergency fund is a collection of cash savings that will help you get by in case of an unexpected expense, such as a broken refrigerator at home, or in the event of an accident, illness, or sudden job loss. 

Depending on your financial security, an emergency fund should be equal to six to twelve months of your monthly costs.

By keeping an emergency fund, you can avoid having to sell your investments at a bad moment or incur debt. Therefore, before you start investing, you should create an emergency fund. Make it a point to replenish your emergency money if you ever need to before continuing to invest.

During your investment

3. Make a variety of investments

While one kind of investment item might perform very well, another kind might perform poorly or simply produce ordinary returns. Therefore, fight the impulse to devote too much time to a single instrument that has previously worked successfully for you.

The key to success is portfolio diversification. You can do this by choosing a well diversified portfolio of assets or by investing in products that already include a variety of assets, including savings or investment plans that are professionally managed.

Your chances of becoming bankrupt or experiencing significant financial loss increase if you invest excessively on one thing, such a single company’s stock. Make sure your portfolio is balanced with some lower risk investments that can lessen the impact of any losses.

4. Dollar cost averaging is crucial

Regular and persistent investing can provide positive effects, particularly for people who lack the time to keep track of the markets continually. By using the dollar cost averaging approach, you can invest frequently while minimizing your exposure to risk.

You invest a specific amount of money over a lengthy period of time on a regular basis. For instance, over the course of 15 years, you might decide to make a fixed monthly contribution to an investing plan.

This method of investing can be less dangerous than investing whenever the need comes. By choosing an unwise moment to invest, you do not incur the risk of losing all of your money, and the impacts of market swings are mitigated.

Dollar cost averaging also gives you the option to start investing sooner and profit from your money growing over a longer period of time rather than needing to wait for a good time to enter the market.

5. Occasionally rebalance your portfolio

The percentages of your money owned in each form of asset will change over time. It’s wise to routinely rebalance your portfolio to maintain the same asset mix you find comfortable. 

Rebalancing entails only purchasing and/or offloading specific assets in order to align the distribution of your wealth with your financial strategy. In many cases, you might be able to buy under weighted assets using the profits from selling expensive, overweighted assets. 

6. Be wary of scams

Singaporeans are accustomed to investment fraud, which frequently uses sophisticated methods like the infamous gold buy-back frauds. 

Any “investment” strategy that guarantees large returns with little to no risk should be avoided. if something sounds too good

If something seems too good to be true, it most likely is. All investments involve some level of risk, and reliable investments that promise big returns typically involve a significant level of risk.

The use of pressure techniques, such as the assertion that the program is only available for a brief period of time or that special discounts will be available for early sign-ups, to induce victims to enroll out of a sense of urgency are other warning signs to watch out for. Additionally, be skeptical of any positive reviews or a fantastic track record because these can be readily faked.

Be cautious if you are offered a commission for introducing someone to a “investment” plan because this typically does not occur with reliable investments and may be an indication of a ponzi scheme.

The good news is that, as long as the insurer has a Singapore license issued by the Monetary Authority of Singapore, the Singapore Deposit Insurance Corporation would safeguard owners of life insurance and general insurance from the failure of the insurer. Therefore, while purchasing plans from such insurers, you can do so with considerably less concern.

Conclusion

Getting started with investing doesn’t have to be difficult. Consideration of investment-linked plans via research is one method for doing this. Or, if you prefer not to embark on this path alone, you can always get assistance from a financial advisor. They’ll help you examine your financial objectives and take the appropriate actions to increase your wealth.

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When Investments Start To Lose Money What Should You Do

It might be distressing to watch the value of your money steadily decrease each day when the stock market is in upheaval and your investments are in the red. It can push you into action you might not have taken otherwise.

Long-term investment entails the risk of losing money as well as gaining money in the stock market. The challenge for investors is to find a way to ride out the market’s ups and downs without letting them affect their quality of life.

When your investing portfolio drops by double digits, the first thing you shouldn’t do is freak out. Don’t give in to your emotions because doing so will almost certainly lead you to make poor choices. Instead, relax, block out the noise of the market, and think about the following.

1. First, you should check if rebalancing your investments is necessary

Assess your portfolio strategically instead of reacting emotionally when making a sale. Is your portfolio spread out across a variety of asset types, industries, and regions? Although long-term government bonds and gold have held their value or even increased throughout the current health crisis, equities have lost value. You will be in a lot stronger position if your portfolio is well diversified compared to less diverse ones.

Similarly, your portfolio’s performance may suffer in comparison to that of someone whose portfolio is widely diversified across business sectors if it is only exposed to global tourism- or hospitality-related funds and fixed income.

One option is to rebalance your investment holdings. Since bond prices have risen and stock prices have fallen, your asset allocation may not be where you want it to be. If you believe this is a good time to diversify your equity holdings, you may want to consider selling some of your larger winning bonds.

You can avoid unintended, excessive exposure to one or more asset groups by doing periodic portfolio rebalancing.

2. Cut back on your holdings of shady stocks

It’s possible that some of you have invested in certain equities rather than a diversified portfolio. If that’s the case, maybe you should reevaluate your stock holdings and get out of some of the lower-quality companies.

These are, alas, the stocks that have probably suffered the most from the market fall. These businesses, which are often characterized by excessive debt and inadequate cash flow creation, may not be able to weather the present global health pandemic, especially if it persists for a longer length of time.

It may be more smart to accept reality and cut your losses on these companies than to hope for a miraculous revival. Profit on the market’s current cheap pricing for high-quality stocks by investing in those companies using your savings or the money you receive from selling less desirable equities. You can also put your money to better use during these periods by investing in a well-diversified equities fund.

3. Be prepared with a "shopping" list

Famously said by then-White House Chief of Staff and current Chicago mayor Rahm Emanuel during the Great Financial Crisis (GFC), “Never let a good crisis go to waste” encourages investors to look past the immediate loss of portfolio value and take advantage of quality companies selling at a discount.  

Strong competitive advantage and a healthy balance sheet give blue chip companies a better chance of weathering economic storms. They can benefit from their competitors’ inability to continue operations due to their debt loads, gain an advantage over them in the race for top talent, and fortify their business on the back of lower interest rates and government support, and emerge as an even stronger company as a result.

As was previously noted, navigating a severe downturn can be very unnerving, which might cause you to make poor investing judgments. Having a “shopping” list of potential stock investments might help you narrow down your options and make more informed decisions. You may do the same thing with equity funds, which invest in a wide range of stocks.

To achieve long-term capital growth, for instance, a diversified portfolio of SGX-listed firms is a suitable choice. 

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How To Utilize Dollar-Cost Averaging With A Regular Investment Strategy To Build Your Wealth Over Time

What is Dollar cost averaging (DCA)?

Dollar cost averaging (DCA) has gained popularity among Singaporean investors in recent years. The premise behind dollar-cost averaging is straightforward: spread out your investments over a long period of time rather than making one huge one.

Using DCA, one can learn to invest in a sustainable manner

We all understand the value of investing, but we may be hesitant to put our money where our mouths are because of the fear of losing it all at once and the difficulty in timing our entry into the market.

However, the inertia can be avoided by instituting a DCA that automatically saves and invests a set amount each month, thus spreading out the effects of any market fluctuations.

The benefit of this is that it doesn’t matter if you’re just starting out; you can start investing with as little as S$100 a month in many different plans.  

Moreover, even if you start with only $100/month, you’ll gain confidence in budgeting efficiently and developing a habit of investing the more you become used to setting aside your hard-earned funds for investment.

Here are some details concerning DCA to think about while deciding on an investment strategy.

Dollar-cost averaging's benefits

The use of dollar-cost averaging to break into the stock market has several advantages.

1. Not Needing to Time the Market

Market timing, as defined by Investopedia, is entering (buying) and exiting (selling) the market using predictive techniques.

 

However, as most seasoned investors will attest, it is extremely difficult, if not impossible, to anticipate the future prices of assets.

 

To reduce the stress of trying to time the market, dollar-cost averaging can be a useful tool. If a trader uses dollar-cost averaging, he or she will buy more assets when the price is low and less assets when it is high. Instead of taking the chance of purchasing while prices are high, they might instead pay an average price for their assets over time.

2. You can begin investing with a little initial investment

Dollar-cost averaging is a method of investing that allows beginners to get started in the market with a relatively small monthly investment. Individuals can begin constructing a long-term investing portfolio with as little as $100 per month with different automatic savings plans available in the market.

3. Set your own pace when you first begin investing

Making money in the stock market is more of a marathon than a sprint.

When they initially get interested in investing, some people put in too much money, too early, despite their lack of understanding.

Beginning with less capital and more time to acquire both experience and expertise is possible if you take things slowly and cautiously at first.

You can start making bolder bets and more informed forecasts about the market’s future as your experience and expertise improve.

How investing little amounts regularly can lead to substantial gains

Time and the impact of compounding returns cannot be emphasized when it comes to generating wealth. If you invest regularly over a long enough length of time, even a small amount each time will grow into a sizable sum.

In ten years, an investor who put away just $500 a month would have around $77,000 thanks to a return of 5% per annum (compound annually). If the time horizon is extended to 30 years, the investor will have well over $400,000 at the end of that time.

Investing for 30 years may seem like a long time, but it’s doable if you get a head start.

Investing steadily over time does not equate to being risk-averse

Dollar-cost averaging is often misunderstood to mean a lower level of risk. While there is some truth to this, it is certainly not a risk-free venture to undertake.

Whether you invest regularly in small amounts or dump a significant quantity of money into the market all at once, your investments themselves will account for the bulk of the risk you take on. Whether an investor chooses to invest in a single sum or by dollar-cost averaging, a portfolio composed only of high-risk, high-return growth stocks is still a dangerous portfolio.

Similarly, if you invest in only one or two stocks rather than a diverse portfolio, you’re taking on more risk. In this case, using dollar-cost averaging won’t help you avoid loss.

Investments that could benefit from dollar-cost averaging

Dollar-cost averaging is most often discussed in relation to stock investments, but it is applicable to a wide variety of investments. Bonds, ETFs, and unit trusts are all examples of such investments.

The investments you make should fit in with your own goals and tolerance for risk. You can achieve this by organizing your investments into various asset types.

To sum up

If any of the following describe your situation, DCA may end up being your best option.

  • Are just in the first stages
  • Trying to establish sound financial practices
  • Can’t afford to invest all at once right now
  • Wish to invest funds as they become available

Remaining invested through market downturns is less risky thanks to DCA’s ability to smooth out possible losses.

It is crucial to begin investing with a long-term perspective in order to appropriately prepare for retirement, regardless of the approach you ultimately choose to take.