We often read and hear about rules on investment, and most of them are very simple yet true. However, most of us tend to forget them and end up following the herd or being lured by clever marketing, with generally less than spectacular results. Here are s
Set your objectives
Think about what wealth means to you, and how long you want to take to achieve it, and then set your objective. Your objective has to be realistic, honest and achievable.
Decide your attitude to risk and set the right risk-tolerance level for investments
The right risk-tolerance level varies depending on many things. Things to consider include your age, family commitments, and income and/or assets. On age, the younger you are the more risk you can take, as you have a longer time horizon. On family commitments, if you are the sole provider, you need to be more cautious, hence take less risk. On income/asset level, the more you have, the less the risk will be, as it will be a smaller proportion of your total income or assets, unless you choose to take more risk.
Know your own style
Apart from setting the right risk tolerance based on the basics as per above, you need to understand your own style, particularly how you respond to risks in life. Are you generally positive and able to handle ups and downs? Or are you more pessimistic and get easily stressed? If you are more pessimistic by nature, you may need to reduce your risk level by a notch or two to set the right level for yourself.
Understand that your financial needs change at different stages of your life
Your financial needs change over time, mirroring what is going on in your life at any stage and the choices you make at that time. You might need more money when raising a family. By the time your children go to university, you will need much more to pay for their education and expenses. And when you hit retirement, your need will be less but you will require savings sufficient for living and medical expenses. The key is to know where you are and what you need. Forward planning is important when making investment, so your decisions should be in sync with your financial needs.
Do investment-portfolio reviews regularly
It is essential to keep a healthy awareness of your investments. You should review on a regular basis how they are faring and whether there needs to be any adjustment. However, investment objectives are generally longer-term, so you need to steer clear from making changes based on thinking that is too short-term.
Only buy shares or make investments you can understand
If you are going to buy shares, try to invest in companies or a sector you know and understand. Otherwise, you may end up taking abnormal risks and suffer poor results. But if you want to invest in shares and do not want to do the homework, an investment fund is a good option. There are many types of funds, ranging from very simple ones such as money market fund mimicking deposits to very complex ones with derivatives and/or cross-currency exposure embedded. While the decision of the underlying investment in the fund is made by professionals, it is important to understand the type of fund you invest in and choose only those whose workings you understand.
Diversify risk with asset allocation
The concept of asset allocation is to have an array of assets, which can be by types (equities, bonds, commodities), geographical locations (Thailand, US, Europe), sectors (consumer goods, healthcare, banks), etc, which carry different risks (and returns), so you can reduce your overall risk in a total investment portfolio. The theory is that not all assets – that is, types, sectors or geographical locations – will behave or yield the same way at the same time, which means you can reduce your overall risk with a well-diversified portfolio.
It pays to invest long-term, as “buy low and sell high” as a practice is actually very hard to achieve, especially for a regular investor. Unless you are an investment professional who has full access to market news and research materials and are tracking and monitoring market movements full-time, and are ready to make decisions swiftly, you may end up losing more in transaction fees and end up “buying high and selling low” when the market has already moved.
Pay attention to details
This is not about keeping notes of every little thing, but checking the small print, interest rates, charges and fees, timing, conditions and other things related to the investment. It is such things that can make the difference between profit and loss.
Use investment professionals and banks wisely
Investment professionals and banks generally have good market information, data and research that can provide you more information and recommendations, and can help you to make sound investment decisions. That said, be wary of strategies and/or recommendations that may be overly complex, frequent buying/selling (churning), and limited/in-house products/funds. That does not mean housed-funds are not good, but having an array of funds of different brands is preferred so you can have options for the most suitable fund for your investment.
Invest wisely and good luck!
Vira-anong Phutrakul is the managing director of retail banking at Citibank Thailand.