Saturday 6 January 2018

Investing with a peace of mind

Understand your risk tolerance

It’s important to know your risk tolerance like low risk, mid risk and high risk. People who have low risk tolerance would generally prefer investments that protect their principal amount and most investment that can protect the principal amount usually provide lesser interest. Mid risk is where you are okay with acceptable interest and have a certain amount of risks involved. High risk investments usually means that your capital/principal amount is not protected and you can lose a substantial amount of your investment.

Your age can also determine your risk tolerance, for example someone in their 20s would have a different risk tolerance than someone in their 60s. This is because in your 20s, you know that you can still earn back even if you have lost a huge amount of money as time is in your favor. On the other hand, in your 60s you most likely would be retired and know that you will not be earning that well.

It is important to figure out your risk tolerance to know what sort of investment products fits you so that you are able to sleep soundly at night and not worry about your money invested.

Get yourself prepared for market volatility

When you get yourself invested, it’s common for fluctuations due to bad news, good news or even no news. You have to make sure that you are not too affected by the fluctuations. Becoming paranoid and fearful is definitely not why you invested, you have to prepare yourself by doing sufficient research and know that it is going to be a long term investment.

Getting yourself prepared can also be by using money that have been put aside and is not your emergency fund.When investing, there is always a form of risk in it. It is really important to prep yourself for what you are about to face so that you can have a peace of mind. To be honest, when you first start investing you will get so excited about checking the price fluctuations. But after awhile, you will slowly get used to it.

Diversify your portfolio 
This is most commonly heard of when people want to reduce the risks that they will have when investing. This can be explained simply by comparing 2 person, one with purely equity/stock holdings and one person with equity holdings, bond holdings and gold. When a market crash happens, the person with just an equity portfolio would suffer much more compared to the one with an equity, bond and gold portfolio. Best saying to describe this is "Don't put all your eggs into one basket".

This is also especially true in terms of income, for example, I hope to be able to create multiple streams of income in future so as to reduce the load on my main full-time income. Traditionally, we depend on one main source of income and when that is removed, most people would worry same as the person who has only equity holdings in his portfolio and the market crashes. So I hope to also diversify my income just as I will diversify my portfolio.

Create and monitor a financial plan

It is good to have a financial plan to be able to know your goals and whether you are achieving them. So let's say you have started investing for awhile now and you check back and realize that you are not achieving what you have set up to. You can then check and analyze and find out what are the reasons causing you not to reach your goal and if changes can be made, you can tweak and improve your strategies.

A financial plan is also important as investing is a long term journey, it is not going to end after one or two years hence you will need a rough guide of what you hope to have and how you are going to achieve them. This can help you have a peace of mind if you can achieve the milestones set up from the beginning and know that you are on the right track!

As 2018 unfolds, we all hope to have a good year and changing our attitude and behaviour can go a long way😀 Let's work hard and do our best!

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