ABCs of Investing - Basics of Investing

  1. Identify your investment objectives and time horizon. 

  2. Consider the risks you can bear and the returns to expect. 

  3. Decide on an appropriate asset allocation. That is the percentage of your savings to invest in property, stocks, bonds and cash. 

  4. Consider how you can diversify your investments.

  5. Research to choose the right unit trust and fund manager.

  6. Consider the transaction costs of your intended investments.

Mistakes
  1. Blindly Betting on the Hot Favourites
    Sometimes CPF investors tend to get caught up in the razzmatazz of collecting hip and trendy unit trusts or stocks they know little about... therefore becoming fashion victims of investing.

  2. Not Diversifying Having a narrow-focused portfolio will buy you a one way ticket to losing your savings should a major investment you own hit rock bottom.

  3. Falling easily for Financial Adviser's Sweet talk Be aware that the unit trust or fund being dangled in your direction... might also be one that will give your Financial Adviser some commission. A good financial adviser who has your interest at heart will disclose this upfront. Read up on your own, so you are in a position to ask pointed questions about your portfolio.

  4. Haphazard Investing While all investors share the same ultimate goal of a good return on their investments... a game plan on how to reach that end is needed to keep your portfolio balanced and in check.

  5. Being Emotional If you find yourself eyeing stock prices like a hawk everyday... STOP. When you invest... be mindful that it's natural for prices to go up and down. Being emotional about your investments might cloud your judgement on when to hold and sell.

Questions to Ask
  1. What are my investment objectives and time horizon?

  2. How does this fund's historical rate of return compare against the CPF's Ordinary Account and Special Account rates? 

  3. How much of my Ordinary Account cash is investible, given that I have a mortgage commitment?

  4. How much of my Ordinary Account should be kept as a cash cushion?

  5. How much risk or volatility can I expect to experience can I bear?