ABCs of Investing - Manage Your Own Funds Or Get An Expert To Help?

A unit trusts pools money from many investors. The money is then invested in a variety of assets in order to meet the fund's objectives.

Before walking the path of self managing, first equip yourself with some basics...
  1. The basic an investor would need for the ability to evaluate businesses...

  2. An investor should have emotional discipline. That means he has to adopt a right attitude towards price fluctuations. He should not be affected by the moods of the market...jumping in to buy when the prices have risen or jumping in to sell when the prices are falling.

  3. The margin of safety. For example, if you read the brokers report that says the fair value is a dollar, you would want to buy at a discount to that dollar.

  4. Do your own research. Read up on the investment products you buy for your portfolio. Always ask yourself if your investments match your time horizon, risk appetite and objectives. 

    Professional management comes with management fees. The investment professional would expect to outperform market averages to justify cost of fees. When using a professional manager, ensure that they provide appropriate measures of performance.


Mistakes

  1. Letting emotions rule your investment decisions. Being emotional will get you nowhere when it comes to investing. See your investments for what they are and the value they hold, and not weigh them simply on how much you've made or lost. 

  2. Thinking that professionally managed funds are totally hassle-free. Some homework is still needed. You still have to go through the process of selecting fund managers. Also read through the fund's prospectus and the reports written by the fund managers.

    An investor should start studying the track record of a fund manager preferably over a long period of time. Past performance of course is not necessarily a good forecaster of future performance... but at least you want somebody with a proven successful track record.

  3. Buying on hindsight. Hindsight is always 20/20. Read up and do your research before jumping on an investment. Avoid buying a stock or fund just because you see its value going up and up for now.

  4. Falling for the freebies. Do not let freebies blind you into buying an investment that might not necessarily be suited for you, in terms of your investment objectives and time horizon.

  5. Not having a targeted way of tracking funds. If you're thinking of self managing your funds, you'd need to have a proper game plan to ensure that your investment aims are reached, right on target.

    Once an individual has decided to manage on their own behalf... they really need to have a proper system set up to monitor how well they are doing. They've got to have an objective and learn how to measure against that objective.


Questions to Ask

  1. Do I have the resources, skills, discipline and time to self manage? The onus will be on you -- to know about a broad range of investment matters....from basic investment planning, to implementation, to the monitoring of investments.

  2. Do I have the ability to evaluate the performances of stocks, bonds or unit trusts? You will need access to market information -- which can be in the form of trading systems covering the target markets and asset classes. Overseas markets will pose an exceptional challenge.

    Knowledge is the key... and few people have the skills across all asset classes.
    It might be worthwhile to self-manage the part of the investment portfolio that you feel most comfortable with.

  3. How am I going to measure my success, or the performance of my portfolio?
    What sort of benchmarks can I compare my portfolio to, to determine if its performance has been successful? You will once again need access to information about markets and asset classes.

  4. Do I have the emotional discipline to self manage?
    Many novice investors are prone to over-react, either buying too blindly or dumping too readily without enough thought. The herd instinct is a hard one to ignore.

  5. Do I have access to investments outside Singapore?
    Studies have shown that the Singaporean investor who invested not only in Singapore stocks but also in global stocks, would have done better than the investor who only invested in Spore stocks.

  6. How much money should I have before I self manage?
    Think about whether you can be sufficiently diversified with this amount of capital...And whether this approach will be cost-effective.

  7. Where can I get help on self-management?
    Don't forget to turn to a qualified person for assistance, if you feel you're getting in over your head, or if you encounter areas you're unfamiliar with.