We’ve gone on and on about the importance of not just saving your money but putting it to work. But if you’ve recently decided to take your finances by the horns and stop gasping every time the hawker aunty tells you your chicken rice is more expensive, The Motley Fool shares what you need to know:
If you’re an investor who has recently decided that you want to be in charge of your finances and start investing, congratulations!
At The Motley Fool Singapore, we feel that the best person to manage your finances, is you. But, at the same time, it’s not difficult to recognize that the second step of ‘what comes next?’ can be equally as scaring or intimidating as making the first leap of faith to want to take charge of your own financial decisions.
So, here are some important things a new investor might want to consider:
Time to Invest
How much time do you have to spend on investing? If you do not have the time to conduct proper research or monitor the companies you might be interested to invest in, an index fund tracking a broad stock market index might be a more palatable choice.
That’s because having an index fund allows an investor to share in the spoils of the long-term growth in a country’s economy and consequently, its stock market.
In Singapore, the most widely quoted stock market index is the Straits Times Index (SGX: ^STI), which consists of 30 of the largest publicly-listed companies in Singapore. There are currently two index funds that track the benchmark index at the moment: the SPDR Straits Times Index ETF (SGX: ES3) and the Nikko AM Singapore STI ETF (SGX: G3B).
Amount to Invest
The next question to ponder is the amount of capital you are willing to risk for your investments.
If you have a small capital base of say, a few thousand dollars, investing in different kinds of exchange traded funds might be more suitable given the ability of ETFs to provide instant diversification. If you have a five-figure kitty to plonk into the market, then you can start thinking about building a diversified portfolio of your own.
Though there are many different ideas of what’s an ‘ideal’ number of companies an investor should own to construct a diversified portfolio, I like to lean toward a figure of around 15-30 companies.
When we talk about risks , we are not talking about the volatility in prices that a share might experience. Instead, we are focusing on the risk of permanent losses.
If your risk level is low, you might want to only focus on large stable companies that have low risk of bankruptcy.
While there are no sure bets, conglomerates with diversified businesses and conservatively levered balance sheets are better equipped to weather cyclical downturns in the economy as certain segments of their businesses might be able to hold up well even as other segments turn south.
Foolish Bottom Line
Investing should be treated as your part-time business. Like all businesses, it is important for us to have objectives of what we want to achieve in our investments, the amount of capital we are willing to risk, and the time we are willing to devote to the venture.
If you do not know where you are going, you will not know it even if you have arrived – once we are clear on our objectives, we will be able to have a better chance of success in the stock market.
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