10 Tips for a Positive Investment Experience

As I look back on my investment journey, I thought about the key lessons I learnt along the way. To demystify investment and investing, here’s my top 10 tips I’ve filtered to guide new investors to a more positive investment experience.

#1

Your Money Psychology

I find that this is often not emphasized enough. When it comes to money, humans can get emotional easily. We know we should “buy low, sell high”, but most people inevitably end up “buying high, selling low”. Although we like to think we are logical in money matters, studies show that we tend to be largely driven by fear and greed. Most amateur investors end up making wrong decisions and suffer from buyer’s remorse. They may also start to rationalise their transactions when they are faced with an unintended outcome. Often times, they also end up with holding on to paper losses. If you are keen to start investing, learn to detach yourself from the outcomes (be it wins or losses).

#2

Understanding the differences between saving, investing and trading

Quite often, I hear people use these terms interchangeably. However, there are differences. Here’s how I differentiate them.

• Savings is the money you set aside for a certain purpose (eg for renovation, for education, for retirement etc). The platform for which you saved with pays you an interest for keeping the monies with them.

• Investing is the act of putting money into a business or an assets class in anticipation that it will grow in monetary value.

• Trading is the activity of buying and selling when the opportunities present itself. If you are buying, you buy when the purchase/offer/ask price is attractive. You sell when the sale/bid price is right. And you earn the difference from the transactions. (This is the most basic form of a trading activity.)

Once you start to appreciate the differences, you will also start to understand investing a bit more.

#3

Explore the Investment Options

When it comes to investing, the most common types of assets classes are equities and bonds. They fall under the category of financial/paper assets. Of course there are also other types of assets, such as properties, business start-ups, precious metals, wine, artwork, NFT (non-fungible token) etc. Within the financial assets class, there can also be derivatives, and structured products.

Under the equities assets class, it can be in the form of stocks, or funds. For funds, it can be exchange-traded funds (ETFs), or unit trusts funds (UTs). The key difference is mainly due to how the funds is managed, (active or passive). Under bonds assets class, there can be government bonds, savings bonds, corporate bonds etc. There are also funds that invest in bonds, known as bonds funds.

With so many variations within each of the assets classes, you will also want to learn about the general characteristics of each of these assets classes. This is so you can manage your expectations in terms of the returns and risk from these assets. Hence, the saying “Never invest in something you don’t understand” is important. In some cases, people “invest” based on “free advice”, and they might not be fully aware of the risks involved. This can be dangerous because not every type of financial assets carry the same type of risks. The so-called “free advice” can end up becoming the most expensive of all.

#4

Get Acquainted with Risks and Risk Management

Investing is risky. Is it not so? It depends on how you define risk. For me, I define risk as the possibility of losing it (money) all.

One of the ways that this could happen is when I don’t grow my money through investment (or any other means), the purchasing power of the money which I saved so hard for, would be eroded by inflation (hence, losing it all).

There are many forms of risks, eg inflation risk, concentration risk, currency risk, economic risks, counter-party risk etc. Once you identify the risk(s) you are most concerned with, you can then narrow down the type of investment vehicle to look into.

When it comes to managing risks of a particular investment, you can choose to take on the risk, avoid the risk, transfer the risk, or to reduce the risk. And if you say “No” to investment, then you are saying “Yes” to inflation and eroding of money’s purchasing power.

The key to managing risk, is to make it your friend, and work with it. You can also read more about managing investment risks on MoneySense here.

#5

Start Small; Review along the Way

If you are starting out, always start small. Start with an amount that you can afford to lose. This is to take care of any potential emotional decisions which may cause regret. However, it does not mean all investments can result in total loss of capital. Hence, you will want to go through exploration and selection process, and learn how to manage the risks.

#6

Don’t get Burnt; Protect Your Capital

Be careful not to get carried away. Investing is not meant to be speculative like gambling is. Speculations are usually more associated to trading. Speculators want to make fast money. Fast in, fast out. Sometimes they may get lucky and earn some profits, and that could make them overconfident and complacent. They may start to place more “invested capital”, hoping to get more profits. Even for trained traders with “cut loss, and let profits run” strategies, their emotions can sometimes get out of control.

When it comes to investing, investors know that their investment will eventually grow. They don’t expect “fast-in, fast-out”. Because businesses take time to grow, and most businesses’ objectives is to grow their revenue, so as to pay back to their shareholders. Hence, investing is an activity only for those who are patient and can wait. It’s actually quite similar to fishing.

#7

Passive or Active Management

These days, there are also options such as robo-advisors, and synthetic ETFs for investors to choose from. These are passively managed, and hence management fees may be low. Passive management means the the selection of the components of the funds or portfolio is done by a set of algorithms, with minimal human involvement.

Actively managed funds or portfolio means that there is a team of assets managers, specialists, analysts etc who is managing the funds or portfolio. This means looking into and determining the types of assets to buy into. Also, known as discretionary managed funds. Usually, this could mean the team will also do back testing, as well as keep track of the latest political news and economic activities that could potentially affect the funds or portfolio, and make certain decisions for the investment.

#8

DIY or Leverage

As an investor, you have the option to do-it-yourself (ie to actively monitor your investments), or to leverage on others to actively manage for you.

#9

Be Willing to Learn from Your Experience

Whether you choose to DIY or to leverage on others, there will always be lessons learnt. Learn to learn from your experiences, be it good or bad. It will be a long journey, but the results can be rewarding.

#10

Enjoy the Journey!

Most importantly, as an investor, you need to enjoy the journey. Think of it like an activity, such as tour. You can explore the different “places of attraction”, but at the end of the day, there will be a place that is so memorable that you don’t mind going back there again and again, because of the positive experiences it brings.

With these 10 tips, I hope to address some of the common concerns on investing.

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