What stocks are you buying for this year? Should I buy or sell U.S. stocks now that Donald Trump is president? Is the Singapore Savings Bonds worth buying? Should I invest in REITS or ETFs? Should I even be investing given the uncertain economic conditions expected for 2017?
These are some of the common questions that people love asking during investment talks and discussion. In fact, some of us reading this article may also be asking some of these questions ourselves.
While we would never discourage people from asking and finding out more about investments for themselves, it’s also important for us to highlight the dangerous flaw of investing based on what other people are saying.
Investment Sentiments Change All The Time
Investing sentiments change all the time. Over the past 2 years, REITs and ETFs have been a hot topic among investors in Singapore. Invest in ETFs if you want to gain low-cost diversification, and REITs if you want to enjoy passive income.
The popularity among ETFs and REITs in Singapore have led to the creation of Singapore’s first REIT ETF, the Phillip SGX APAC Dividend Leaders REIT ETF. Going forward, we expect other REIT ETF to be created as long as the popularity of ETFs and REITs continue to sustain.
By investing in what others are talking about, you are basically investing in what is popular in the market today. That doesn’t necessarily mean the investments made are wrong, but it does mean your strategy is dictated by what’s hot and what’s not, rather than what helps your investment objectives.
Investment Objectives? My Objective Is To Make Money
If you think an investment objective is as simple as making money, then you are in the same group as the gamblers who enter the casino.
Your investment objectives need to go beyond just wanting to make money. Ask yourself if you are looking to generate a secondary income for yourself through your investments? Or whether you want to invest money today so that your investments will grow and be worth much more in 20 years.
Or maybe you are looking for what’s undervalued today, in the hopes that you can make capital gains from your investment when the market finally priced it correctly.
All of these are fundamentally different objectives that lead to different types of investments being made. If you need to generate a secondary source of income today, you should be look at REITs, blue-chip stocks and government bonds. If you want to grow your investments over the next 20 years, you should be looking at well designed ETFs or unit trusts. If you want to find undervalued companies, then you need to look closely at individual stocks, rather than invest through an ETF or unit trust.
And if you want to make money through market volatility (i.e. buy low, sell high), you should be trading, not investing.
Your Risk Profile Matters Too
Time waits for no one and that’s sometime investors need to recognise.
We must accept the fact that not all of us are able to always invest the way we would want to due to limited capital. For example, Warren Buffet can afford to invest millions into many different companies without expecting any returns over the next 5 years, most of us can’t, even if we know the investments is likely to pan out.
In the same way, we have to understand our risk profile. A retiree who only has access to a small sum of money to invest in should not invest with the mindset that his or her investments may provide good returns after 20 years (unless they want to leave it for their children).
On the flipside, a young 30-year old investor who has a stable income can invest knowing that he has the time to ride out the highs and the lows of the market over the next 20 years.
Be Honest With Yourself
It’s pointless to say that your investment objective is to make money from undervalued stocks when you have neither the investment expertise nor sufficient time to commit to what needs to be learnt and practised.
Other situations could include wanting to invest, but having other important financial commitments that you need to be responsible for. For example, you may need to support your elderly parents or your sibling. In such circumstances, you may need to switch from a high-risk, high return strategy to less risky asset classes such as government bonds instead.
When it comes to investing, it’s unwise to just follow what everyone else is doing. So think for yourself and consider your own personal objectives and circumstances.