Part 2: 10 tips to master before you start investing

If you want to be wealthy or at least retire comfortably, you need to invest your money.

Achieving these goals are not guaranteed but you would at least have a much better shot at achieving these goals than those who never invest.

You can invest in the stock market, properties, businesses, precious metals (gold and silver), and other alternative investments of value.

Rich people save, invest and re-invest while poor people spend and spend some more.

Investing is not hard, and anybody can do it.

Nevertheless, when starting something new, always have a plan. Don’t start blindly without doing your homework and do it systematically. Everything has a process and investing is no different.

Last week, MyPF covered the first five tips to successful investing, so here as promised, are the next five.

Tip 6: Understand the costs of investing

All investments have costs. But the price you pay for the investment and to whom — is up to you. Costs impact your investment profits. Taken together, fees signify a lot of money out of your account every year.

The major investing costs you should be aware of:

· Trading and brokerage fees

· Unit trust fees and loads

· Management fees

Unit trusts, ETFs, shares, bonds, and other investments each have different fee structures.

Passive investing (investing for the long haul) has fewer fees than active investing such as trading stocks.

Stockbrokers charge commissions.

Unit trusts charge various management fees, which is the cost of operating the fund, and some funds charge load fees.

Tip 7: Get a reputable advisor

An advisor plays a significant multiple role for an investor. As your investing capabilities and strategies develop, besides being a platform to learn about investing, an ideal advisor also acts as your lifelong mentor, consultant and guide.

Things to consider about your advisor:

· Their professional standing in the industry, and their achievements

· Their charges, frequencies of advisor-client communication

· What additional services they can offer

You can also opt to go to full-service managed options that provide a large variety of services. It can provide investing competencies and prowess for people who don’t have the time to stay up-to-date on investing matters.

Tip 8: What to choose for your initial investment

For a conservative investor and beginner, put your money into:

· Low-risk securities such as fixed-income securities.

· Unit trusts or ETFs (but beware of fees payable).

The main financial principle to highlight is diversification. The aim is to avoid the pitfalls related to “putting all your eggs in one basket.” You split your investments between different asset classes:

· Shares

· Fixed-income securities

· Cash

It is risky to invest all your money in one specific share. Reduce your risk by investing in ten shares in ten different companies.

The same goes for investing in only one industry – it is less risky to split investments into ten different industries.

Tip 9: Control these two emotions – fear and greed

When investing, fear and greed will affect your investing journey the most. Fear or greed can either reduce your profits or magnify your losses.

Fear: During a bearish market, investors fear losing or missing out. Fear of loss leads to selling your investments without making a profit.

Greed: This emotion is most obvious during bullish markets. Investors become greedy and hold on to a position for too long hoping for a higher price or often make unplanned trades.

Successful investing requires discipline. Daily market fluctuations should not be an influencing factor in long-term investing. The aim is making a profit.

If an investment keeps you in a constant state of worry, reconsider your risk tolerance level. A more conservative investment might be more suitable.

Tip 10: Periodic reviews and adjustment of your portfolio

Review your established diversification or asset allocation strategy. The diversification weightings change as the market value of the various investments change. Change of your asset class mix can be done through re-balancing.

For example, the asset class under shares have performed well. The growth or profit can be re-channelled to other asset classes i.e. bonds. Otherwise, the overall risk may increase above your risk tolerance level.

Continuous periodic reviewing and adjusting is key to long-term successful investing.

This article first appeared in https://mypf.my

MyPF is on a mission to help simplify and grow Malaysians’ personal finances through financial education.