What are the traits of a smart investor? Is there a secret recipe that we can follow to be one?
Boasting speakers with years of experience in the financial markets, The Association of Banks in Singapore (ABS), MoneySense and Securities Investors Association (Singapore) (SIAS), hosted the 10th year of My Money Seminar on 16 November 2019. With an experienced line-up of speakers, we went down to the seminar (with more than 900 other people) to pick the brains of these investment professionals to discover the secret recipe to smart investing.
Here are the 8 ingredients for smart investing.
# 1 Monitor & Stay On Top Of Your Investments
We need to monitor the investments that we make.
David Gerald, Founder, President and CEO of SIAS, shared that investing in today’s fast-changing economy would require us to stay on top of our investments. This means making sure that we know what is in our portfolios, how the investments are performing and whether we have achieved our investment goals.
We first need to stay informed as an investor and understand our rights and responsibilities as an investor.
There are many ways we can do this. We can look out for and understand more about the disclosures shared by the companies we invest in. We can also attend Annual General Meetings (AGMs) to find out more about the companies’ plans and raise questions at the AGMs.
# 2 Always “Ask. Check. Confirm.” before Investing
Avoid investing on impulse, herd instinct or on name familiarity.
Ong Chong Tee, Deputy Managing Director of the Monetary Authority of Singapore (MAS), spoke of the need for retail investors to take charge of their investments.
“The term My Money implies taking one’s responsibility for one’s finances. Retail investors must know their own risk tolerance, return objectives and understand the potential products to invest in. Three important enablers for all market participants to play their roles effectively: 1) a culture of fostering trust in the financial industry, 2) strong market discipline that incentivises the right behaviour, 3) adequate and timely disclosure of material information.”
Ong Chong Tee (MAS) giving his keynote address on “Strengthening Trust In Our Capital Market”
So, we should avoid investing on impulse, due to herd mentality or because of name familiarity. Instead, we should aim to construct a diversified investment portfolio which is aligned to our risk profile and understand the issuer and the product before investing in them. Also, investments which are relatively easy to access, such as products sold through ATMs, are not necessarily low-risk products.
The best way to protect ourselves as investors is to beef up our financial knowledge. MoneySense runs regular programs to help investors gain financial knowledge and learn how to spot investment scams. No one should go into an investment just because it promises a high return. Mr Ong urged everyone to always “Ask. Check. Confirm.” before committing to an investment.
You can find out more about how you can protect yourself from investment scams in this video.
# 3 Start When You Are Young
Starting young gives us more years in the market to ride out market volatility and to enjoy the benefits of compound interest.
Compound interest is interest earned on top of interest already earned. If you start early, your investments will be able to compound, and grow significantly, over a longer time period.
You should save before you invest. You should also make sure that you have enough emergency funds for rainy days. So, start saving when you are young to give you the financial flexibility to start investing early.
# 4 Don’t Be Greedy!
The main aim of investing is to generate more returns over time. However, we should never be greedy when it comes to growing our wealth.
This was the main point made by Ho Kwon Ping, Founder and Executive Chairman of Banyan Tree Holdings as well as Founding Chairman of Singapore Management University (SMU).
He shared that investing is about incrementally increasing our wealth, so that we can continue to pursue other passions in life.
When we invest, we should invest wisely, as it is difficult to consistently beat market returns. If we invest with the hope of making a windfall, we may end up losing more than we can afford by taking excessive risk.
Michelle Martin (MONEY FM 89.3) in a fireside chat with Ho Kwon Ping (Banyan Tree Holdings and SMU)
# 5 Review Your Financial Well-Being Regularly
Health is wealth.
Taking the steps towards financial wellness is just like how we would take steps to ensure we are in good physical health. This is what Han Kwee Juan, Group Head for Strategy and Planning at DBS Bank, shared with the audience.
Panellists discussing topic “Advancing investors’ interest – what more can be done?”, moderated by Michelle Martin (MONEY FM 89.3) (L-R) David Gerald (SIAS), Chew Chin Yee (SGX RegCo), Han Kwee Juan (DBS) and Jeremy Goh (SMU).
When we take care of our health, we make sure we eat well, sleep well and exercise regularly. Similarly, when it comes to financial wellness, there are also three things we should do regularly.
First, we need to manage our debt obligations. We should try to pay off debt as much as possible, starting with those with the highest interest rates, such as credit card bills.
Second, we need to make sure that we protect ourselves and our family. This means setting aside at least 6 months of emergency funds to help us tide through financially difficult times. We also need to make sure we have purchased the appropriate insurance plans that provide for loss of income or healthcare expenses that we may incur. We also need to plan for our family’s long-term future, by first planning for our own retirement and for some, planning to leave a legacy.
Third, we need to review our investments regularly, keeping in mind the reasons why we invest. Are we investing to grow our wealth, to prepare for a comfortable retirement or are we investing for our children’s education? We should also ensure that our portfolio is on track to meet our investment goals.
# 6 Remember Your Long-Term Strategy
Investing is not a “get-rich-quick” scheme.
Christopher Tan, Executive Director, MoneyOwl and CEO, Providend, highlighted the importance of riding out market volatility over the long term. Investing for the long term allows us to weather through market downturns and years when the markets are down.
Everyone has their own money equation, where our income becomes savings after we take away the fixed and variable expenses. Christopher shared the money equation to demonstrate the practical ways in which investors can take charge of their own finances. This includes increasing our income, cutting down on our expenses and ultimately having more in savings. These are factors which are under our control, unlike the movements of the market.
Lastly, he also pointed out that short-term information should not change our long-term investment strategy. However, short-term information can help point us towards the right short-term decisions.
# 7 Optimise Your CPF Account
Many of us strive to retire comfortably.
When it comes to retirement planning, Christopher shared that one of the first things Singaporeans need to do is to check if you have topped up your CPF. He shared that CPF should be the first instrument to look at to form your retirement safety net as CPF LIFE gives us lifelong income in our retirement.
While the return on our investment is important, the reliability of our income stream during retirement years is even more important and we need to preserve this income. Christopher elaborated that once we have reached the Enhanced Retirement Sum ($264,000 as of 2019), additional cash that we have can then be used to invest in different instruments.
Loo Cheng Chuan, a strong advocate for using CPF to build up a retirement portfolio, shared that the aim should be to top up our CPF as much as possible, and as early as possible. This will help us to reach the cap for our Full Retirement Sum early, and that it will continue to grow over time to help us form our financial safety net.
He also shared with the audience some tips on how to maximise their returns in both CPF Special Account and CPF Retirement Account.
Panellists discussing topic “Managing your money in today’s global economy – what to look out for?”, moderated by Michelle Martin (MONEY FM 89.3. (L-R) Geoff Howie (SGX), Terence Wong (Azure Capital), Christopher Tan (MoneyOwl and Providend), Chan Fook Leong (CFA Society Singapore), Loo Cheng Chuan (1M65 Movement) and Song Seng Wun (CIMB Private Banking).
# 8 Find Out Your Financial Health Status
How healthy are you, financially?
While we may have an investment strategy, we should regularly review our portfolio to see if there is any gap that needs to be bridged. This includes reviewing the portfolio if it is on track to achieve its investment objectives or make adjustments according to our life stage and needs.
At the event, attendees were able to do Financial Health Checks (FHC) and have one-on-one consultations at financial health clinics. They were also able to discuss their customised FHC recommendations and get financial guidance on how to improve their financial health.
If you were not at the event but would like to find out your current personal finance status, you can still take your FHC on MoneySense website. All it takes is a click and 5 minutes to complete the FHC.
Participants find out how to improve their financial health through Financial Health Check and one-on-one consultations at the Financial Health Clinic.