One thing most people are guilty of is not taking control of their money. Due to lack of education and knowledge, they would rather entrust someone else to take care of their money – be it the bank officers, financial planners or, even, their partners.
The most common investment factors that intimidate the average Joe are that either investing is too complicated or the risk of losing money is too great.
However, with the advent of technology, both factors can be dealt with and it becomes easier and requires less effort to kick-start your investment.
Investing will, of course, require more work than not investing at all. But if you have done your homework, especially to address the two issues above, then investing can be a very rewarding endeavour, with the potential to grow your wealth substantially.
From things to invest in, to ways to do it, the wealth of opportunities you can find and do on the Internet have made it simple and cost-effective to take control of your money.
Whether you’re saving for your child’s education fund, down payment for your first home or your retirement nest, if you have five years or more before you need to get your hands on the money, you’re better off investing in order to grow your money.
The value of your investment may fall but history has repeatedly proven that over the years, a well-managed fund is likely to grow faster than cash in a fixed deposit, or savings account.
Here are a few things you need to consider before you embark to be a savvy do-it-yourself investor:
1. Compare and do your homework
First-time investors often find themselves unable to entrust the responsibility of investing their hard-earned money to a complete stranger like financial planners and it can also be quite troublesome to visit different fund houses or bank branches to compare and finally invest in a unit trust.
Being a personal investor, your best bet will be relying on independent investing platforms to compare and invest in unit trusts.
The emergence of these platforms is the crucial driving force behind the DIY investment trend. With these platforms, investors no longer need to call a bank officer or financial adviser to buy and sell. Instead they can delve into the wealth of information, research articles and performance charts available online and do it themselves for lower fees.
The rise of these investing platforms allows investors to access their investments from the comfort of their computer, or even smart phone in some cases.
2. High return and high risk, or low risk but average return?
Identify your risk profile: conservative, medium or high risk, before you select the funds to invest in. The funds selected should match your risk profile.
Choosing which funds to put your money in is the stage that can be truly daunting for the uninitiated. But there are some obvious starting points.
Review the fund’s volatility quarterly or annually. You can see how a fund performs by looking at the historical data. Compare the fund’s best years with its worst to see if the ride is too wild. If it is too wild for your risk tolerance, consider other funds that are more stable to mitigate the risk of losing money in your investment.
Besides that, investors can also take a look at a list of funds recommended by online platforms. These funds are selected by their in-house research team and are based on both quantitative and qualitative parameters.
Though investment always involves some level of risk, you can improve your chances of making positive returns by choosing a fund that holds some promise of outperforming the market. There is no one best fund for every investor, but it depends on the investor’s financial goals and risk appetite.
3. Drip feed your investment over time
For investors who invest the DIY way for the first time, start by investing a small sum monthly rather than dumping a huge lump sum into one fund. The fear of losing money always looms large when investing, hence no one would appreciate losing 10% or 20% of their hard-earned cash.
Regular investments in smaller amounts can help you weather the storms while still reaping rewards when the sun shines, but whatever you do, investing will always involve some risk.
By drip feeding your investment, you can utilise the dollar cost averaging concept of investing, which is the practice of investing a fixed amount of money regularly regardless of market conditions. By investing a fixed amount on a monthly basis, you accumulate more units when prices are low but lesser when prices of units are high. Thus, a lot of stress is avoided as you do not have to decide whether the fund is expensive or not and whether the market condition is suitable to invest.
4. Be in it for the long-term
One important thing to remember about investing is that it is for the long term. Over the long term, investing your money in a wisely-picked fund will produce far greater returns than you’ll get from your savings accounts.
Financial experts agree that any investment you make should be for the long-term and held for a minimum of 5 to 10 years. If you think you will need the money sooner, to buy a property or pay for your wedding, stick to short-term investments.
5. Beware of investment costs
Though investment costs should not be the sole factor when choosing a fund, it is still important to consider the costs involved. Some of the common costs to look out for are sales charge, annual management fee, trustee fee, to name a few. These fees and charges can reduce your return significantly.
The odd 0.5% here or 1% there may not sound as though it will have much impact on your returns. But, over time, charges make a significant difference to the speed at which your investments grow, so as a DIY investor it makes sense to compare costs before you commit your money.
However, by choosing to be a DIY investor on platform, you can reduce the charges significantly as it has a lean operating structure that enables cost savings to be passed down to investors in the form of lower sales charges.
The last thing you want is to be paying over the odds for a return that is mediocre at best.
6. Don’t auto-pilot your investment
Though your investment should be for long-term, it should never be left unmonitored. Investors should always monitor and keep track of their investments to ensure that they correspond with their ever-changing financial goals and risk tolerance.
Make it a habit to review your portfolio at least once a year to make sure it still matches your goals.
A sensible starting point for the DIY investor is to read up on different funds and monitor their performance over a short period before deciding on one. Set up an account online and invest a small amount first on these investment platforms.
Remember, this is your money and your future. Take control of it and enjoy the rewards that follow after.
7. Understand the market conditions
Whether you are investing in local or overseas markets, knowing the market conditions is crucial for making better investment decisions. You should be well-informed with the latest market changes as a major event in any market may result in a chain reaction, and eventually affecting the returns of your funds.
While research articles are often expensive and kept exclusive to institutional investors, there are investment platforms that provide free independent research article on funds and coverage of various markets to keep DIY investors up-to-date and enable them to make the right call with their investments.
Remember, to be a savvy investor, it‘s important to know what you are investing in, instead of blindly following what’s hot in the market.
