Simple Investment Strategies

Recently, some friends approached me for financial advise. In laymen terms, they are asking me what is the best thing to do with their savings in the current climate. I must add that they are not familiar with investing in general, and have mostly placed their monies in banks for a safe, steady and definitely slow return.

Well, I admit to being no expert, but I shared with them a simple investing philosophy that should reap considerable benefits over the long term.

1) Apart from your immediate commitments, one should allocate the remaining monies across various financial assets. But I do not recommend unit trusts or mutual trust fund. If one must, choose only those with the lowest management and transaction fees.

2) Investments in equities can be quite risky now, with the possibility of a global recession increasingly likely. However, as history showed, attempts to time a market can cause one to miss out on market rebounds. (Recall how the 2002-2003 period was filled with great uncertainty but the market had a quick recovery) 40%-50% in equities can be quite safe. But remember, only place monies that you can afford to lose (even the safest market can sometimes behave crazy).

3) Indices of various stock exchanges can now be bought online. This helps to diversify risks, and will be extremely important, especially to Singaporeans. Our export-driven economy will suffer more in a global recession.

4) Always take note to minimise transaction costs by purchasing in bulk. These can be done by accumulating savings before making any purchase. My rule is approximately $3,000 for every purchase. This can be significant in the long run. As an example, a $1,000 purchase with $25 commission translates into a 5% fee when you eventually make a sale. This means that the stock has to rise at least 5% before one breaks even. A $3,000 purchase translates into a much lower fee of less than 1%. That is why day traders almost never succeeds (they enrich the brokers at their own expense).

I hope that someone out there will also find this useful.