Avoiding pitfalls in investments

Wood4

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25/7/04 ST


Avoiding pitfalls in investments
Investors these days are spoilt for choice. There's literally a wealth of products to choose from. But sometimes, that can be a problem. That's because with so much choice, investors get confused, especially with products becoming increasingly complicated and sophisticated.

If you are one of those feeling bewildered by all the variety, take heart. Here's a helpful list of common mistakes to avoid.


DO NOT KNOWING WHAT YOU WANT

MANY people invest without knowing what they want or what they are investing towards. Not having a clear picture of your goals means that you could be buying investment products that may not meet your objectives.

You should start by asking yourself some basic questions.


What am I investing towards - university education for my child, or maybe a retirement fund?


How long do I have to achieve my goals - 10 years or 20 years?


How much can I afford to set aside as savings and investments?


2 NOT HAVING A PLAN

INVESTING without a plan is like driving in a foreign land without a road map - you may know where you want to go, but have no idea how to get there. With a plan, you can get back on course when you go astray. Without one, you would not even know if you are off course.

If you do not have a plan already, this should be your top priority before you do anything else. Talk to a financial adviser if you do not know where to start.

3 TAKING RISK TOO LIGHTLY

SOME people take too much risk, others take none at all - both are mistakes. The amount of risk taken correlates to the level of returns - the higher the risk, the higher the returns.

People who take too much risk end up as speculators rather than investors. Remember that you should speculate only what you can afford to lose.

It is necessary to take some risk to see returns - the challenge comes in taking the right amount of calculated risk in order to obtain the results you desire.

4 PLACING ALL EGGS IN ONE BASKET

YOU need to diversify and spread your investments over assets that move in opposite directions during an economic cycle, (for example, shares versus bonds) so that you can limit your exposure to any single source of risk.

Establish an asset allocation for your portfolio to help you decide how much you should put into various instruments such as bonds, equities and property.

5 CAVING IN TO PANIC


DO NOT start panicking when there are short-term fluctuations. For your long-term investments, you should not be overly alarmed when movements are experienced in the short term.

In the face of market volatility, fear causes many to bail out of carefully planned investments. This results in mass selling - driving prices down and escalating losses. Look at the big picture when tracking investments.

6 RELYING ONLY ON THE PAST


PAST performance is often the basis for making many decisions, especially when choosing which unit trust to invest in. However, past performance is not always indicative of future performance and is not the only basis by which a fund can be evaluated.

Ratings services such as Mercer Retail Funds Rating present a forward-looking view on a fund's future performance prospects based on qualitative assessments of fund managers, their experience and the investment process, among other things.

7 LISTENING TO HEARSAY


DO NOT fall prey to herd instinct. Avoid making big financial decisions based on hearsay.

If you have an illness, you would consult a doctor. In the same way, treat your life savings and financial future as you would your health.

Make informed decisions by speaking to financial advisers or professionals.

8 RELYING BLINDLY ON DATA


DO NOT treat financial articles or advertisements as a prescription of what you should do with your money. The right way to read articles that tout specific unit trusts or stocks is to treat them as useful information.

Always read between the lines, look at the terms and conditions of sale and do your own research.


9 NOT FINDING OUT ENOUGH


THIS is one of the biggest mistakes anyone can make. Far too many people get their fingers burnt by failing to find out more about what they are investing in.

Do not be afraid to ask your financial adviser more questions if you do not understand any feature or risk elements of a product. Get all the facts, especially about any potential pitfalls and risks, before committing your hard-earned money.

10 GOING ON AUTO-PILOT MODE


DO NOT assume that once you have your plans and portfolio in place, you do not have to review or re-balance it. You need to monitor your investments regularly to capitalise on market changes and movements.

Similarly, your plan may need some tweaking when you face major changes or challenges in your life that could have an impact on your finances.

Article contributed by: Lim Wyson
Vice-president
Wealth management
OCBC Bank
 

Yellowfin

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I am going to put this thread as sticky. Feel free to add in more constructive opinion on investing.
 

gks

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Spreading too thin...

"4 PLACING ALL EGGS IN ONE BASKET

YOU need to diversify and spread your investments over assets that move in opposite directions during an economic cycle, (for example, shares versus bonds) so that you can limit your exposure to any single source of risk.

Establish an asset allocation for your portfolio to help you decide how much you should put into various instruments such as bonds, equities and property."

It is okay to diversify, but spreading your investments too thinly by putting bit in everything not only increase the cost of holding the investments, this will also result in very marginal gains or losses to the point that it may be better off just earning the peanut bank interest.
 

w3nmin9

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In the face of market volatility, fear causes many to bail out of carefully planned investments. This results in mass selling - driving prices down and escalating losses. Look at the big picture when tracking investments.
does this mean u have to follow to sell ur stock also?since the prices are going down..
 

Zitrone

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No.

Rather than listing the reasons why i should keep the stock, I would list down the trigger points for releasing.
2 Assumptions : I am not a day trader. I don't do margin trading.

  • If there is some extraordinary event that has direct, negative impact on the industry I had invested in ( for example 9/11 impact on airline stocks). And this impact could stretch more than a year. The push factor is when my stock value depreciates and dividends fall.
  • If I badly need cash.
  • If there is extraordinary changes to the company, I would consider release of stock (Eg: the company goes into very risky business; or there is business takeover which I cannot predict the outcome)
  • If I have found a better company from the same industry that is doing better, has better prospects than the current company i am investing in. The key is not to put all my eggs into the same industry.

Perhaps there are more points some of you would like to add.
 

henrylbh

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DO NOT start panicking when there are short-term fluctuations. For your long-term investments, you should not be overly alarmed when movements are experienced in the short term.

In the face of market volatility, fear causes many to bail out of carefully planned investments. This results in mass selling - driving prices down and escalating losses. Look at the big picture when tracking investments

Let me relate my experience. In the early eighties, I got gold at U$800 (=S$1,936) as long term investment. That partly because my spouse trust gold so much.

Yes very very long term till today still holding. What do I get? Over the year, I got no dividend, interest or gain from holding it. The price of gold went down down down to as low as US$250. Like an idiot I held on to it.

After about 25 years gold finally gone above US$900. But I still lost a ton. Now US$900 = S$1,278 today. So I actually lost part of the principal sum. The interest alone on S$1,936 (the initial investment) over 25 yrs would have more than double. Even if gold goes up to US$2,900 (= S$4,118) I am still out of pocket. I would have been better off just leaving the money in FD. My initial investment of S$1,93 6would have gone up to more than S$4,500. So what's the big picture? Gold can be cold.
 
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Janice88

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Unbiased financial advice

Does anyone knows where i can get unbiased financial advice from ex bankers, fund managers..etc?

I have been losing money on those so called investments and i am absolutely tired of these commissions agents
 

La Papillion

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Does anyone knows where i can get unbiased financial advice from ex bankers, fund managers..etc?

I have been losing money on those so called investments and i am absolutely tired of these commissions agents

Why believe in anybody but yourself? Why should they give you advice if they do not get anything in return? :) Try investing in yourself first :)
 

moneytalk.sg

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No one cares about your money more than you do. It is up to us to pick up investment skills and do analysis.
 

Citigold

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Does anyone knows where i can get unbiased financial advice from ex bankers, fund managers..etc?

I have been losing money on those so called investments and i am absolutely tired of these commissions agents

Most so called "financial advisers" go for commission based products so normally they will intro u financial product that will pay them more commission ,they dun really care how much your money will grow/loss, so is better to invest in bonds and stocks, even in fixed deposit that can earn guarantee earning(though lower)but more safer and better than those products that "promise" to give better earning than fixed deposit.

How knowledgeable a adviser is depend on how much financial knowledge u have.
 

Inzaghi009

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Does anyone knows where i can get unbiased financial advice from ex bankers, fund managers..etc?

I have been losing money on those so called investments and i am absolutely tired of these commissions agents

For you only.... :)

Stocks.... just dump into Genting SG and Cosco.
Volatilty is high and 2yrs down the road sell them off, or sell them off when u r satisfy with the returns. if under water, suck thumb and wait.

Funds..... go into Asia emerging market like china, taiwan, SG, HK and brazil
Volatily is so so only... but good enough.same thing, 3yrs down the road sell them off, or sell them off when u r satisfy with the returns. if under water, suck thumb and wait.

currency... stick to AUD or NZD
little volatily/ The rest can forget abt it,
Buy AUD only when it is lower than 1.23 and sell off by 1.28.

Bonds.... forget abt it. I think too slow. and furthermore 250k per piece, will unbalance our portfolio for sure. unit trust bond have high sales charges which eat into the yield greatly. so it is a no no.

if make profit many yr down the road please pm me to treat me for dinner :s13::s13::s13:

if loss $$ please dun curse me.:look:
 

calculus1985

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Before you invest, you should ask yourself
1. TimeFrame : What kind of investor are you?
Short, Long, Mid? (How many years? )

2. What is your risk captial per trade/investment?

3. Determine your Trading/ investment strategy
Be it some kind TA, FA or mixture...

4. Backtest your strategy against historical data!
Please, if you can't even succeed in the past, how confident are you to succeed in the future? Yes, past not equal to future But there must be some standard to measure your success rate of your strategy. Don't be a gambler!

5. Follow your RULE !!
Please, i know you putting your hard work money in...so follow your rule! Don't let greed or fear control u!
 

Wealth Bingo

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Overcome Greed

Yes, i fully agreed about rule 5, i.e. overcoming greed in buying stocks. dont over leverage or you will get burnt easily.

:look:

Before you invest, you should ask yourself
1. TimeFrame : What kind of investor are you?
Short, Long, Mid? (How many years? )

2. What is your risk captial per trade/investment?

3. Determine your Trading/ investment strategy
Be it some kind TA, FA or mixture...

4. Backtest your strategy against historical data!
Please, if you can't even succeed in the past, how confident are you to succeed in the future? Yes, past not equal to future But there must be some standard to measure your success rate of your strategy. Don't be a gambler!

5. Follow your RULE !!
Please, i know you putting your hard work money in...so follow your rule! Don't let greed or fear control u!
 

elliotreble

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Does anyone knows where i can get unbiased financial advice from ex bankers, fund managers..etc?

I have been losing money on those so called investments and i am absolutely tired of these commissions agents
feel your pain. nv trust those commissioned sellers.
 

sngyanyuan

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Yes, i fully agreed about rule 5, i.e. overcoming greed in buying stocks. dont over leverage or you will get burnt easily.

:look:

I always try to think of the potential loss instead of the potential gain when i am choosing my stock, this will help to prevent overconfidence
 
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