3 Critical Things That Investing Beginners Should Figure Out Before They Even Put Their Money In
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Let’s face it: very few people are actually turned off at the idea of making a quick buck. I mean, have you seen the queues at Singapore Pools outlets during the lead up to the annual River Hongbao Toto draw? The snaking queues are the sort that would put Hello Kitty collectors to shame.
We’re not saying that there’s anything wrong with a casual punt every now and then, and many people do it just for the fun of it. The real problem is when that attitude on turning a quick profit gets carried over into the world of investing. Investment vehicles like trading foreign currencies and a Contract For Difference (CFD) are great ways that people can take advantage of market movements quickly, but used wrongly, can really turn sour very fast.
Now it goes without saying that you should have a relatively good understanding of the investment products that you are going to put your money into, but there are other factors that you need to understand before you actually start making trades, and here are some key ones:
1. Your Risk Appetite
A lot of literature on risk appetite is very often related to the types of investments you make. For instance, some hold opinions on buying more equities when you are younger because you can afford the volatility, and then buying more into fixed income products when you are older because they tend to be more stable. But at the end of the day, what this all really boils down to, which a lot of people don’t actually consider is this – how much are you willing (or able) to lose?
This is an extremely important factor that people either choose to ignore, or don’t fully consider when they start out investing. Needless to say, no one goes into investing their money immediately thinking they are going to lose money because that completely defeats the purpose of investing your money. But it’s important to consider because this has further reaching consequences when it comes to certain investments.
Products like CFDs, which allow you to take on a certain amount of leverage, allow you to really take hold of market movements and capitalise on quick profits without having to put out as much cash upfront. The flipside to leverage though, is the reality that this leverage is a liability that you need to account for as well and you could end up forking out more than your initial investment. Not sure what we’re talking about? You can check out our lowdown on CFDs and how to effectively invest in them.
2. Your Investment Goals
I know we harp on this a lot in all our investing articles, but the simple point that bears repeating is that it’s important to have something to work towards in order to effectively figure out how you are going to get there. When people talk about investment goals, it’s very natural to assume that it pertains to having a number in mind to work towards. That’s definitely true, but what a lot of people miss out is the time factor involved.
Is your goal short or long term? Is that number realistic based on the time frame allocated? What sort of investment products will help you achieve that goal based on your desired time frame? These are all questions that do stem from your initial target, but also take into account the time frame you have allowed for yourself to achieve this target.
Considering your time horizon will also help you to find suitable tools that will help with this investing journey. If you are looking at a shorter time horizon, then the need to be more hands-on with your investments becomes a lot more critical. Platforms with tools such as alerts can help you to optimize your trades by giving you timely information based on perimeters that you set, instead of constantly staring at numbers trying to work some magic with your eyes.
3. Your Investment Behaviour
If you’re a lazy bum busy person like me, optimizing the time spent managing your investments is key. Technology has come a long way in helping many more people to start investing because they no longer feel that it’s a tedious and time-consuming activity. This is where choosing a suitable platform has a huge value add. Mobile apps are almost a default expectation now, and with Singaporeans being such avid mobile users, having something that allows you to make decisions on the go is obviously very useful.
However, what is really quite a game changer when it comes to the realm of investing is the advent of algorithmic trading. For people who know that they are not going to have the time to make trade decisions all the time, this is truly a godsend. On the other hand, it also helps people who might be prone to being overly hands on to have some measure of discipline by automating their trades.
A good algorithmic trading tool will also provide guides in planning investment strategies, which is a huge plus point for people who are still trying to find their footing at the start.
Have you started investing already? Share your experience with us here!
This is the fifth article in an investment series sponsored by IG, the world’s No.1 CFD provider (by revenue excluding FX, 2015). The information in this article is meant for informational purposes only and should not be relied upon as financial advice. Users may wish to approach a financial advisor before relying on any advice provided by the website to make any decision to buy, sell or hold any investment product.
Here are the previous articles in the series: