With the New Year just around the corner, eager many investors are looking to attend the expectations of the market and trading seminars for brokerages and “market gurus”. Are you one of them? You are going to invest based on the recommendations, ideas, or trend analysis for 2017?
Let DollarsAndSense share some pointers before you get Schrader in the sales and marketing tactics of this episode.
1. Know yourself
Knowing yourself is the key to finding business/investment style that suits you. A lot of people don’t understand the level of emotion at stake when one trades or invests. This is the reason why a lot of failure in their investments end up losing money and faith in the markets. They allow their emotions to control their decisions and consequently tend to react impulsively.
Let’s try this exercise below. The answer to the following questions may give you a better idea of whether you have the mood of being a passive or active investor.
…. Are you someone who almost always too busy to monitor the market volatility? Or are you someone who is able to sneak a few minutes every hour or even control the market?
B. Are you a thrill seeker always the scariest rides in the amusement? Or are you someone who prefers any surprises cradles the comfort of a daily routine in your life?
C. Are you retired or a 25 year old fresh grad ? Do you have a consistent savings plan? Or do you rely on the payment of a lump sum from your investments?
From the answers you give to the questions above, you should have already show you what type of investor you really are. The table below gives you a sample of the risk characteristics of investor behavior. Note that you don’t need to be all of the properties in the qualify to certain type of investors. Just remember these words of Hamlet “to be honest with himself.”
The risk of an investorpassive investornetwork impatientOlder and cautiousAggressive approach to making wealthGuarded approach to making wealthLump amount investmentSmall gradually investmentHave time for marketsNo time Market Watch
2. We have a plan.
Now that you have identified the type of investor/trader you are, let’s move to the investment plan.
The authority on investment, there are many types of investment vehicles you can utilize in building your wealth.
1) Buy and hold stocks for at least a year;
2) the ETF investment;
3) currently popular investment funds real estate investment.
If you are able to invest more time and energy in determining the prospects of the basics of stocks and poring over Research reports annual data and then buy and hold strategy suits you. The proceeds from this type of investment may yield a higher return (in theory) than say, ETFs or mutual funds real estate investment. We call this, the value of the investment. It is to buy at a steep discount when determining the intrinsic value of the stock. You may decide to hold the stock even wearing a XX% above the intrinsic value or even the basics of changes.
If you are really not comfortable in the stock selection or just have no interest in learning explain the basics but still want to get market returns on your investment, then the ETF investment may be the best way to go. Currently, the SPDR STI ETF has delivered a 1-year returned -2.95%, but over 10 years, has delivered a return of 3.45%, since its inception in 2002, has delivered a return of 6.48%. This shows you the power of buy-and-hold strategy. Currently four companies offering STI ETF monthly investment plans.
OCBC chip investment plan (BCIP)
Maybank Kim Eng monthly investment plan
POSB Invest Saver
Philip share Builder Plan
What about REITs? Simply put, they are legal entities created to buy and manage real estate assets with a view to generating income for unit holders. It allows investors access to real estate assets and share the benefits and risks of owning such assets aggregate to receive income at regular intervals (i.e. quarterly, semi-annual or annual). Currently as of January 2016, SGX 39 listed REITs, property trusts and stapled trusts under various categories like, residential , industrial, retail, office, hospitality and other specialized sectors including health care. Then how can you decide on investing in this instrument? Well, it requires all set to stock selection skills and the ability to sit and hold.
However, if you have identified yourself an active investor, then you have a few options to go about it. Using technical analysis, punters aim to capture short-term movements for a quick profit. There are (1) the trading day (Contra) and (2) the swing/ momentum trading (3) trading indicator. What is day trading (Contra)? It used to be a popular scheme of the local punters do day trades in the SGX. It allows the player trading + 2 day settlement or receiving the differences without the need to collection or delivery of the Securities immediately. This is a risky strategy that is used to capture short-term momentum moves in the market like a hack.
Another form of investment activity is the act of actively choosing stocks on the basis of Swing Trading Strategies. This can be a time-frame from five days to three months. The trader should always select the stop loss, to prevent wiping out his/her account. One should also consider the risk-reward ratio to calculate the potential risk reward to determine whether the trade worth taking.
Index trading is one of the more risks and active approach to growing your wealth. It requires complex technical analysis to trade the volatility of the market. You can use contracts for difference (CFD) or trading orders index. Warning: diary is a popular product among traders, such as trading volume is usually thin, which causes liquidity risk.
3. Stick to the plan
Once you have identified your style and your trading strategy, stick to it!!! More often than not, most people might choose to be a passive investor in a trade. Then, I will enjoy the hype the media reports about the big moves in the market by mid-year. I don’t want to miss out on those returns, these investors will change the initial strategies either because they are making small losses or not making great returns, “should”, if they chose to buy and sell more active. What comes after that is probably more of a pain, losses, and regrets.
A good quote from Jesse Livermore, one of the greatest traders that lived according to Investopedia, comes to mind “it was never my thinking that made big money for me always was sitting.”
Have a trading journal and record all your trades and decisions for later review to see if you’ve stuck to your initial decisions.
Review and improve
The last but most important of all, is to review your end of year performance. In most of the companies in the end of the year are evaluated to determine the one of the market. Similarly, the negative year-end review of your trading performance. Go through all your pages and your resolutions (daily trading). Is it achievable? To sexually transmitted diseases. Came performance or the performance indicator? How is it compared to the other investments? – Any: the partnership accounts (yield 2.5% 4.0% Ordinary Account and special account respectively). Yes the partnership is an investment too! After all of this information allows you to select or change your trading strategy for next year.