We have crystallised investment principles and process into 10 easy to follow steps. Follow this and see how your investments will improve by leaps and bounds

Investment Principles and Process

How do you decide which funds to invest in? Would you invest in flavour-of-the-month funds, or would you follow a diversified portfolio approach?

  1. First things first
  2. Second, do not follow others
  3. Third, ask what products are available
  4. Fourth, do not fall for what is being pushed
  5. Fifth, build your portfolio carefully
  6. Sixth, note the front-end or back-end fees
  7. Seventh, note the type of investor you are
  8. Eighth, how important is economics
  9. Ninth, tactical or strategic investing
  10. Tenth, regular reviews
First things first

Why do you want to invest, i.e. your objective?

How long do you want to be invested?

What do you hope to make?

How much risk can you accept? (i.e. how much losses you can take before you lose sleep!)

Second, do not follow others or others’ advice blindly

Know yourself and know what suits you. Advisers can help provide information and their opinion, but you have to decide what is best for you. To do so, learn about investment and get your feet wet to test the waters before plunging in headlong.

There are different investment styles – what is yours?

Examples:

  • Value versus growth
  • Small versus large caps
  • Momentum tracking
  • Contrarian approach
  • Indexing (Exchange traded funds ETF)
  • Alpha strategies
  • Dollar-cost averaging
  • Strategic versus tactical
  • Know which style suits you, or what combination, and when to apply which style.
Third, ask what products are available and choose wisely.

For example, can bond funds generate a return better than the 4 per cent paid by CPF-SA, or the 2.5 per cent of CPF-OA, after deducting sales charge and annual charges?

In other words, what is the opportunity cost? If you are using cash, the opportunity cost is the savings rate. You should only invest if your investment can have a good chance of returns, higher than the almost risk-free returns of CPF or fixed deposits.

Fourth, do not fall for what is being pushed, whether by banks, insurance companies or advisers. 

These products are usually the latest product launches, but are they the best for you?

Remember, financial institutions tend to push products which they carry, and there are likely to be better products distributed by others.

Fifth, build your portfolio carefully, bearing in mind the principles of investing.

Bear in mind especially your own investment goals, risk appetite, risk tolerance and diversification across regions, countries, sectors and product types.

Sixth, note the front-end or back-end fees being charged and whether there are fees for switching as well.

Wrap account would be better for those who intend to buy and sell more often. Be especially careful of advisers who recommend switching and benefit from it. Ensure that it would be in your interest and not theirs.

If you are using your CPF and your adviser rebates you a certain portion of the fees, you are required under CPF investment rules to return the amount to your CPF. Beware of rebating as it tends to be an inducement

Seventh, if you are a “trader” type (contrasted with the “investor” type), do take note that short-term investment is totally different from long-term investment. 

Fund selection would, for example, be more on what can make money in the short-term. Market timing would be an important factor too.

It is not true however, that market timing is not important for long-term investment. If you can buy at a good time, your potential returns will be that much bigger. Asset allocation also needs to be readjusted to suit changes along the timeline for long-term investment.

Eighth, how important is “economics” to investment?

There are investors who go for fundamental factors and who are not influenced by sentiments or market talk. Economic analysis would be important for “fundamentalists”.

We examine economic fundamentals and update our advisers monthly.

We do examine charts and try to interpret them to predict the future trend.

Our approach is to consider socio-economic and political factors, and also look at the performance of the different fund managers and funds which are with large subscriptions and some years of trade record.

We are more cautious on funds with small subscriptions and which are relatively new, unless it is a theme which is clearly a “winner” given the present circumstances and trend.

Ninth, we do some tactical investing besides strategic investing. 

We think there is a place for tactical allocation and switches given the market volatility at times and rapid changes in political and economic climate.

Tenth, we do regular reviews for our clients for individual funds and portfolios, especially for “short-term horizon” funds.

Besides fund managers updates, we also look at independent analyses as well.

For more information on the above products and any other financial planning services, please feel free to leave us your contact details and we will get back to you.

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