It is very common that people asking another person for tips or suggestions when it comes to investment. Even within a group of friends, they having discussions and talks about investment. The most common questions are such as:
What stocks are you buying for this year? Is this an equity year? Should I buy or sell U.S. stocks now? Shall I invest in ETF or REITs? Should I invest given the uncertain economic conditions expected for 2018?
It is good to seek for opinions and finding out more information about the investments, however, it is also important to understand that there is risk in investing based on what other people are saying.
Investment Preferences Change
Investment preferences tend to change over time. In most time, investors with higher risk appetite love to invest in stocks as they like the excitement of seeing the market up and down. Over the last two years, there is increasing appetite for investment in emerging markets, be it equity or bond investments. In some countries, the demand for REITs and ETFs is also increasing, for example in Singapore and Hong Kong. People invest in REITs when they want to gain on passive income, while those invest in ETFs, they want a broad diversification with lower cost.
Back to the statement “do not invest based on what others are saying”, it simply means that you will prone to invest in what is popular in the market at that point of time, i.e. follow the preferences of the market. It does not mean those investment preferences are wrong, but it does mean that your investment strategy is determined by what’s hot, rather than what is in line with your own investment objectives.
What is Your Investment Objectives?
So, what is your investment objective? If your investment objective is simply just making money, then you are just like gamblers who try luck in the casino.
Your investment objectives have to go beyond just to make money. The objectives need to serve certain purposes in your life. What is your purpose of generating a secondary income through the investments? Is it for your retirement? Is it for your children’s education fund? So, in general, your investment objective is to invest today, so that your investment value will grow and be worth much more in the coming 20 to 30 years.
Different Investments for Different Types of Investors
Depending on your own investment objectives, there are different types of investments available in the market.
If you want to generate a secondary source of income, you may invest in blue-chip stocks, property, REITs and government bonds. If you want to grow your investments over a medium to longer terms, you may look for ETFs or unit trusts. If you want to look for undervalued companies, then you have to do some research and invest in individual stocks.
If you want to make money through market volatility, i.e. but low, sell high, then you should be trading, instead of just investing.
Your Risk Profile
You have to understand that difference people will have difference risk profile and risk appetite. Not everyone can invest in a volatile market. When it comes to investment, it will take time. If you have limited capital and time, you will be trapped in an unfavourable situation if the market trending down.
Every investor needs to understand their own risk profile. A younger investor, say 25-year old, can invest and hold for a longer time, knowing that he has the time to ride on any market volatility over the next 30 years.
However, for a retiree or someone who is approaching the retirement age, would not invest a big sum of money in a high risk investment, knowing that they can’t afford to lose the money or do not have the time to accumulate good returns after 20 years.
Be Aware of Your Financial Situation
If you have limited income and have high financial commitments, say supporting your elderly parents or siblings, or insurance commitment, you may need to look for less riskier investment such as government bonds or fixed income category of unit trusts.
If you have limited capital and time, it is also advisable to look for lower risk investment with regular income, such as income-focused type of unit trusts.
When it comes to investing, it’s not advisable to just follow what others are saying or doing. Study the investment, do your own research. So, think of your own investment objectives and financial situations.