There’s only 3 things u need to know before investing and it’s not what you think


I’ve heard plenty of people say they want to start investing. But they are afraid to get started. I can understand. There are a lot of terms that sound intimating like fundamental analysis, technical analysis etc. So many types of analysis and we all have day jobs!

It’s no wonder most people would rather hire someone take care of it for them, like a financial advisor. Unfortunately, these people are rarely acting in our best interests.They don’t really care if you make money. Watch this segment by Jon Oliver for a hilarious review of financial advisors.
Investing by yourself doesn’t have to be difficult. You really only need index funds (which I’ve covered here), bonds (in the Singaporean context, your CPF is invested in Singapore Government bonds) and cash.

With that in mind, you only really need to know 3 things:

What keeps you up at night?

It’s strange because I’ve seen people burn through thousands of dollars every month gambling on lottery: toto, 4D or football and sleep like a baby. Yet, ask these same people to invest in the market, and suddenly they’re worried that they’ll lose all their money.

I hear people saying “I’m afraid of investing in stocks–look what happened in the financial crisis.” That’s like saying you don’t want to go to university because Bill Gates never finished university and he’s a billionaire. It’s not as if these people have carefully weighed out the risks and rewards of investing. And then decided not to invest. It’s more that people are scared of losing money.

What are your goals?

People severely underestimate just how much everything costs. Using my magic crystal ball on all thing Singaporean: here’s where I predict money will be spent

  1. Getting married: anywhere between $20,000 to $130,0000 in up front costs including: ring, honeymoon, wedding dinner, rom, decorations, dresses etc.
  2. Buying your house: $60,000 to $200,000 including renovations

Everyone thinks they will be different. But essentially everyone goes through the same phases. At some point, you will get married. And you will want to buy a house. It’s unavoidable.

When do you need the money?

Your investment choices depends on timeline of your goals. Any money you need in the next 5 years should be kept in cash like investments. This is because the market is volatile over the short term ; over 1 or 2 years, your money could go up or down quite a bit. The market will eventually trend upwards over a longer period of time. So your risk is mitigated over the long term, but if you invest for the short-term, you will need to invest conservatively.

Investing success is not about picking stocks

Most people mistakenly believe that “investing=picking stocks” and they start worrying about which stocks they need to buy. They start jumping after the next hot stock tip. And get worried whether they’re making a mistake. When in reality, you shouldn’t be picking stocks but looking at your overall asset allocation. For now, if you have no idea where to start, you might start by buying an index fund. It’s ok that it’s 100% of your portfolio for a few months. (Index funds are by definition, diversified). As you get comfortable, you can start allocating your funds like this.


Thoughts for my fellow Singaporeans

Did you know you’re already invested in bonds? Our CPF monies are invested in Special Singapore Government Securities which is in effect a bond. Every month, about 20% of our salary and 17% from the employer is invested in bonds only. That’s a massive amount invested in bonds if you’re not doing anything. In order to combat that, you should be using part of and achieve part of the recommended asset allocation ratios in the diagrams above, you can either start using your CPF to invest or buy a house using your CPF and use the extra cash flow (cash otherwise going to the mortgage) you have to invest in an index fund.


PS: If you want to learn more about what to invest in…

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  1. Frederick Ho says:

    I’m one of those, though I have been playing shares for about 35 years now, it was haphazardly done all the time. Fortunately, I stick to only blue chips. No margin, Contra or speculations. Yet I don’t have a proper plan. What I got was from newspapers write ups. I really do not think anybody can make money from shares! Take an example, Singtel. When it started, it was about $3.60c, today after a few decades still about there, $4.10?. I never forget this as a friend bought 10 lots at $3.60 when Singtel commenced. He said ‘ how can Singtel, a government owned stock lose money? It belongs to Singaporeans’. Remember it gave out the shares to all Singaporeans, I still own it.
    Your view, please.

    • Hi Frederick

      Let me try to unpack what you’re saying. If you combined the dividends and capital growth from your friend’s investment in Singtel, I think your friend has made money. So, I think what you’re saying is that the money made is not substantial. If you want to make substantial amounts of money in shares, it’s a full time job and not a particularly safe one at that. I personally know several people who’ve quit to become full-time traders and then came back to work after a year or 2 burning through their saved money. For most people, investing should be should just be something that they automate, putting away money each month and letting compound interest do the heavy lifting. Investing a regular amount each month, getting started early and having proper asset allocation are the most important factors. The aim is steady and also rather boring regular growth.

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