This article was written in collaboration with ShareInvestor’s Market Outlook 2019. Register using the promo code “dollarsandsense” for a complimentary ticket. All views expressed in the article are the independent opinions of DollarsAndSense.sg
2018 has been a volatile year for investors in Singapore. The benchmark Straits Times Index (STI), made up of the 30 largest and most liquid companies listed in Singapore, scaled a 5-year high in the middle of the year before declining to close to 2-year lows today.
In fact, most major stock markets in the world, save in the US, is trading at a loss for 2018. This heightened volatility isn’t likely to go away any time soon, especially in a rising interest rate environment coupled with ongoing global geopolitical tensions, in the form of a trade war between US and China, North Korea’s continued unpredictability, political cover-ups in the Middle East and anything new that 2019 may throw up.
With all these uncertainties at play, ordinary investors like us may be extra jittery when it comes to making investments in 2019. Here are some things investors can do to strengthen their investment portfolio in 2019.
# 1 Knowing Your Risk Appetite
Knowing how much risk you are able to take is one of the most important things you need to do. It’s one thing to think you’re willing to take a risky bet on an investment that can give you 10% returns. It is an entirely different thing when you’re actually down 50% on that investment. Ask yourself, can you sleep easy at nights knowing you have lost a huge chunk of your investment portfolio?
The kind of person you are may be a good indication for the kind of risk you are likely to be able to accept. Are you someone who loves the most thrilling rides at the theme park or do you prefer something which is safer, such as watching Netflix at home.
# 2 Understanding Your Suitability To Take On Risky Investments
A person who just joined the workforce and living with their parents can take on riskier investments than someone much higher up the corporate ladder but is married to a stay-at-home spouse taking care of their three young children.
This is because the younger worker has limited financial obligations beyond his handphone bills and daily expenses. While not ideal, this person is able to lose a substantial portion of his investment portfolio without really having an adverse impact in his quality of life.
On the other hand, few would recommend the older worker to only invest in highly risky investments. This is because in spite of earning more, he has numerous financial obligations, to pay for his home mortgage, feed his young family, save for his children’s education and put money away for his retirement. If this person loses a substantial portion of his investment portfolio, it may have a drastic impact on his ability to educate his children or move into a bigger home for his growing family.
Every individual faces their own unique situations in life, and you need to understand how much risk you should be taking on.
# 3 Find An Investing Strategy That Suits You
The two most common investing strategies are passive and active investing.
Passive investing is the act of taking a backseat in your investments. Rather than trying to time the market, beat the market or doing too much research on individual stocks, your main aim is to simply earn the market return.
The simplest way to start earning market returns is to invest in the overall market. In Singapore, this is the STI, and there are also indexes for most other major markets. You should try to invest in an exchange traded fund (ETF) tracking these indexes or even investing in the largest components of these indexes on a monthly basis to gain exposure to the overall market.
Active investing is simply choosing which stocks to invest in and exactly when you want to make the investments. This way, you are picking stocks and timing the market, in hopes of beating what the overall market is actually delivering.
To achieve this, you will require greater investing knowledge and spend more time on picking your investments. You could start by picking stocks that you believe is undervalued or overlooked in the market, in hopes that its price will catch up in the mid- to long-term.
You could also start trading to capture short-term price fluctuations in a particular stock or even the entire market. Products such as Daily Leverage Certificates (DLCs) listed on the Singapore Exchange (SGX) allows you to trade indexes such as Singapore’s STI or Hong Kong’s Hang Seng Index (HSI) and Hang Seng China Enterprises Index (HSCEI), as well as single stocks such as DBS, SingTel, Keppel Corp and Venture Corp in Singapore and Tencent, Ping An, PetroChina and CNOOC in Hong Kong.
Of course, you need to spend much more time and have a strategy in place to be able to execute this successfully.
# 4 Monitor Your Investments
Firstly, you should not start on a passive investment strategy only to listen to friends on a hot stock tip or sell off all your investments because the market turned south. Your investment strategy should bring you through both good and bad times.
What you should be doing is monitoring how your investments are doing over a period of time. If you are actively investing your money, you should compare it to the market benchmark to check if you have indeed beaten the market, or would have been better off as a passive investor.
If you are a passive investor, you should also monitor against the benchmark index to check if you have indeed earned the market return. You should also compare to other types of passive investments such as foreign indexes or even the Singapore Savings Bonds (SSB) to see if the additional return you are getting (if any) is really worth the risk that you are taking.
Part of monitoring your investments should also be to ensure your investment portfolio is sufficiently diversified. This means not putting all your eggs into one basket.
You need to invest in companies that are in diverse industries and geographical regions to minimise the risk that a single company, industry or country has the ability to significantly affect your entire investment portfolio.
# 5 Continue Your Learning Journey
That should not be the end of your investing journey: learning new things will never hurt your ability to become a better investor.
It could be that you start out as a passive investor, mainly due to your lack of confidence to make investment decisions on your own, but after tracking your investments for a year, and learning new things along the way, you are more confident to identify undervalued stocks or are able to start trading. You could always portion a small part of your investment portfolio towards this for a start.
It could also mean an active investor in the Singapore market learns more about an overseas market such as the Hong Kong or the US, and starts investing there.