Since the pandemic began, more and more people have taken an interest in investing. There’s also been increased buzz around cryptocurrencies. Tan Chin Yu, client adviser at wealth advisory firm Providend, offers some advice about how to invest, common investing mistakes to avoid, and how to choose an adviser who’ll help you make the most of your money.
Q: Is investing only for super-wealthy people who have connections in the financial industry?
Chin Yu: No, you can invest even with a small amount of money. Many platforms don’t require a minimum amount. Even with, say, $100, you can buy shares using a broker or start an account through a digital investing platform.
Q: What are some mistakes new investors make?
Chin Yu: One of the most common is being overly focused on the headline numbers on returns. Investing always involves risk. While expected returns are easy to understand, you should educate yourself on the potential pitfalls and question whether you’re comfortable with them. You should also consider your situation and goals holistically before deciding what risks to take.
The second mistake is not doing your due diligence and investing just because someone says so. Again, you should know what you’re investing in and why you’re investing in it. Because there’s so much “noise” out there, you want to be critical in assessing your investments and challenge assumptions where needed.
The next mistake is not differentiating between investing and speculating. When you invest, always ask where the returns are coming from – economic activities like equities and bonds from companies that produce goods and services to earn profits, or from a guess about certain events that may take place in the future? If it’s the latter, then that’s speculating and not investing.
Finally, many newbie investors don’t understand the underlying fees that eat into their long-term returns – examples are sales charges, fund management fees, platform fees, surrender charges, switching fees, admin fees, and wrap fees. Not all fees are bad, but you want to make sure they’re known and justified and not excessive.
Q: Must I hire an adviser if I want to invest?
Chin Yu: It depends on your needs and situation. If you enjoy doing your own research, mapping out your investment suitability based on your goals, and doing regular housekeeping of your investments, then you might want to take on the task yourself. It’s also the cheapest option, but you must put in the time and effort.
Want to outsource the job to a professional? Remember, you’re entrusting your hard-earned money to someone for your important long-term goals, so they should be someone you trust.
Q: How do I choose the right adviser?
Chin Yu: You must be certain that they’ll always act in your best interest and discuss any potential conflicts of interest with you openly. You must also understand how they’re remunerated and whether it’s aligned with your personal goals.
In addition, the adviser must consider your holistic situation and goals before recommending any investments. Investing isn’t a mere product-buying exercise; it should factor in your ability to take risk from a financial health and time horizon perspective, how much risk you need to take to achieve your required return, and ultimately, your ability to sleep at night during periods of market distress.
The adviser must also have a sound and consistent investment framework that’s supported by strong evidence and data. After all, you want to feel confident in the reliability of your returns, which will subsequently determine whether or not you can meet your goals.
Finally, they should take into account other personal specific factors such as potential tax or estate implications.
Q: What are cryptocurrencies and are they worth investing in?
Chin Yu: These are basically digital assets that use a decentralised network or ledger to record ownership as well as work as a medium of exchange. They’re designed to be a new form of currency in the digital space with no central control by any single authority. They’re often seen as an alternative store of value. The value of cryptocurrencies largely depends on how widespread their adoption is and their perceived value by another party, as there is no intrinsic value. There are also cryptocurrencies that are built with different service usage that may have utility value and value-add to society.
I wouldn’t consider buying into cryptocurrencies as an investment. It’s a speculation that it will be widely accepted in the future and hence, that its value would go up significantly. However, the caveat is that it could go to zero as well. So, if you’re considering putting money into cryptocurrencies, only put in what you can afford to lose.
Q: Can you “get rich quick” with investments?
Chin Yu: Investing is a slow and steady way to build wealth over the long term. It’s about getting good and consistent returns and having the patience to stick with it for an extended period of time. American investor Warren Buffett’s wealth was achieved through long-term compounding. He’s said that the stock market is a device to transfer money from the impatient to the patient.
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