New to investing? 5 tips and tricks to get you started

Investment

If you’re the sort of person who stays up at night worrying about the price of milk, or who would rather hide cash under the mattress than open an account, investing might not be for you. For the rest of us, though, the sensible, well-researched use of investing can be a way to maximise your money. If you are keen to make your money work harder and have long-term/short-term goals than need funding, it might be time to check out the IG glossary of trading terms and start making some well-informed decisions to grow your wealth.

Of course, if you’re new to world of investing it can all seem a little wild and confusing, but below are five essential tips and tricks to get you started.

  1. Do your research

While you might decide to contact a financial advisor or speak with numerous investment experts about what they think you should do with your money, ultimately it’s your decision. For this reason, it’s absolutely crucial to do your own research and ensure you know the difference between the many different kinds of investments from opening a savings account to buying stocks and shares. Whatever you do, don’t start investing without reading up on the jargon (much of which will sound complicated but is actually rather straight forward, see the glossary linked to above) and make sure you weigh up your options.

Moreover, before investing in any particular company, always do your homework so you know what you’re getting into.

  1. Think about your goals

When it comes to investing, thinking about your personal goals will help you to decide how risky you want to be with your hard-earned cash. If you have a little spare money and are willing to take a gamble in a bid to get high returns, you may decide to act on an exciting trade signal or market boom. If, however, you are looking to prepare for retirement, you might prefer to make a longer-term investment such as buying bonds or property that could bring high returns down the line. You may even decide not to put all your eggs in one basket, making numerous investments to avoid a complete gain or loss. Your investment plan should reflect your personal circumstances and outlook.

  1. Know your limits

Investing can be addictive, particularly if you get hooked on watching the fluctuating currency on the foreign exchange or are continuously being sent signals from brokers telling you now is the perfect time to act based on the current price of gold. That’s why it’s essential to have a budget. You must know exactly what you want to do with your money before you make a move and stick to the plan to avoid doing something you later regret.

  1. Keep an eye out for investment fees

If you’re an investment novice, choosing a fund manager may be the easiest option. After all they’ll help develop and manage a portfolio on your behalf and help guide you in the right direction with regards to making sensible financial decisions. That said, fund managers almost always charge more fees than an account you manage yourself and this will, of course, eat into any profits you may make. Similarly, if you’re buying individual entities such as stocks, you may be charged per order, so keep a look out for sneaky fees and try to keep your outgoings down.

  1. Consider exchange-traded funds

The markets change at such a rapid rate that, unless you have copious amounts of free time to analyse what’s happening in the business and financial world second by second, it’s probably best to consider exchange-traded funds (which follow a wide range of stock, or sometimes then entire market). As a rule, this type of investment tends to be less volatile than individual stocks as they tend to grow over the years and reduce the risk of you losing out should a singular company crash and burn.

Investing may seem like a brave new world if you’ve never done it before, but with plenty of research and guidance it can be productive – just take it slowly and don’t make any moves without having all the facts to hand.

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3 Ways To Become A More Disciplined Investor

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It’s fairly indisputable that discipline is one of the most vital attributes for a person looking to establish financial security. But it’s also particularly important for those who are looking to invest their money, whether in stocks, commodities, or some other venture. A reckless or carefree approach can get you lucky now and then, but will ultimately prove unreliable or at least unsustainable. On the other hand, a more practiced, careful, and strategic approach to investing can result in a stable long-term outlook and steady growth of funds.

Some of this depends on personality and experience, but here we’ll look at three tips anyone can follow for how to become a disciplined financial investor.

1. Divide Your Expectations Into “Buckets”

If you haven’t heard of the “bucket approach” before, you may want to learn a little bit about it before reshuffling your financial strategies. Basically, this is the approach of dividing your money into buckets for specific goals. For instance, if you want to buy a car, you’ll have a set venture dedicated to your car fund; the same might go for a home, an engagement ring, tuition, or even something a little smaller like a vacation. The point of doing this is to gain a more comprehensive understanding of what money you need for which purposes, and when you need it. You can then plan investments accordingly, and if necessary break up your strategies from one “bucket” to another, allocating risk as seems appropriate.

2. Keep A Trading Journal

If that sounds like it might be a technical term, don’t worry, because it’s not. There’s no exact format or method for a trading journal, but it’s been described as a comprehensive record of data related to a trader’s performance over time. Basically, that means it’s a detailed set of notes on everything that’s gone into your trades. Ideally, it’s not just what the asset was and whether it was a gain or loss, but also what the conditions were upon entry and exit, why you invested, why you pulled out, etc. It can be as thorough or simple as you like, but the underlying point is that past performance can help you to learn a great deal about your own habits, and what your best conditions for success have been. The best traders are unemotional but still introspective!

3. Eliminate Your Emotions

We just mentioned that the best traders are unemotional, but this bears further attention in its own category. Simply put, it’s been expressed by innumerable experts and publications that reacting emotionally can lead to poor decisions at the worst times. You might panic and pull out of a perfectly stable investment simply because of a downturn, or you might get excited and pump more money into a rising asset that isn’t poised for long-term success. Those are very basic examples, but they illustrate the larger point that too much happiness, excitement, sadness, or worry with regard to investments can lead you to make decisions that aren’t based on logic and knowledge. Of course you’re going to be thrilled when your investments are making money and frustrated when they’re not—just don’t let these or any other “feelings” dictate your actions.

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What Stock Should I Buy?

Warren Buffett once said, “it is not necessary to do extraordinary things to get extraordinary results.” When it comes to finding stocks worth investing in, we simply need to ask the right questions.

We share 3 of these questions with you, and 3 financial ratios that can help answer your questions.

160715 What Stock Should I Buy
What if you don’t have a stock in mind? After all, there are over 9,000 stocks on the Singapore Exchange (SGX), New York Stock Exchange (NYSE), NASDAQ and Hong Kong Stock Exchange (HKex) alone and brokers like us offer  access to many more markets including Thailand, China, Indonesia, Malaysia and the Philippines.

There are tools out there that can help you identify stocks using ratios like the ones above. Click here to learn how stock screeners can help you identify trading opportunities.

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Which One Is A Better Investment Strategy: Maximizing Or Simplifying?

By definition, maximizing refers to “increasing [something] to the greatest possible amount or degree” while simplifying refers to “making [something] less complex or complicated”. Applying these two opposing strategies to your investments can lead to different results.

Let us find out which strategy is more productive.

With the sole purpose of increasing the value of their portfolios, “maximizers” are vulnerable to the trap of purchasing a product off the bat. They may be too optimistic and expect the best possible outcomes. This idealistic thinking can be far from reality. The truth is, there will always be a few decisions that would not work in your favor.

Aside from investing on the wrong products, maximizers can be overwhelmed and stressed about the abundance of investments that they bought. The mindset of a maximizer is focused on the overall potential that various investment can offer rather than optimizing a single investment.

Sure! You can actually earn five times more than your initial cash-out if you added all of these options. However, can you really pay attention to all of it?

Most people cannot. They end up putting “so-so” effort into each of their investments and fail to achieve the best scenario that they previously envisioned. Also, they end up being drained. Drained investors can become unproductive. Being unproductive may later result to a significant loss.

With all the money at stake, do you still want to maximize?

If your answer is “NO”, try the second strategy called simplifying. Simplifying allows you to create a portfolio that is easier to manage by eliminating complex investments. To tell you frankly, investing does not have to be difficult! You just have to focus on one thing at a time.

Start by analyzing all the possible investment options that you can afford. Next, determine which options suits your personality the best. Remember that investing is more than just about the outcomes.

A powerful mindset that “simplifyers” possess is contentment.

According to Psychologist Barry Schwartz, people who are preoccupied with the best possible outcomes are less satisfied and more susceptible to “buyer’s remorse” than the people who are satisfied with the outcomes that are good enough.

Maximizing can be counterproductive to your investments. The more you try to grow your wealth, the more you can inflict strain and stress to yourself.

Image Credits: pixabay.com

Image Credits: pixabay.com

Sources: 1 & 2

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Stagflation: what is it and why should investors care?

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Following Brexit the term “stagflation” has reared its head, but what is it, what signs should investors look for and how will it affect different investments?

While no-one can say for a fact what the economic fallout of the UK’s vote to leave the European Union will be, the prospect of “stagflation” has been floated as the economy faces an uncertain future.

Uncertainty is the market’s biggest foe, but investors can protect themselves by improving their understanding of the UK economy and remembering that diversifying portfolios, by holding many different assets, offers the best opportunity to ride out any potential storm.

What is stagflation?

Stagflation is a description of an economy in trouble.

It is a portmanteau of stagnation and inflation. It is the term used to describe periods of persistently high inflation – the cost of goods rising – combined with high unemployment and stagnant demand or low economic growth.

The UK previously experienced stagflation in the 1970s when a jump in oil prices squeezed the life from the nation’s economic output and contributed to higher levels of inflation.

What has Brexit got to do with stagflation?

Analysts and the UK government forewarned that Brexit, at least in the short-term, would hit the UK’s economy:

Schroders’ Brexit scenario estimated a fall of 0.9% in GDP by the end of 2017 compared to our baseline forecast, and a rise in the level of CPI (consumer price index) inflation by 0.6%.

Why might the UK economy falter?

There are worries that UK companies will struggle to do business with international trading partners due to the uncertainty over which markets will still be accessible after the UK leaves the EU.

A knock-on effect could see employers stop employing and households cut spending as both companies and consumers batten down the hatches and preserve cash in fear of a slowdown.

There are concerns too that inflation will rise as sterling continues its downward spiral, pushing up the cost of imports and therefore the cost of living. This would come at a time when the UK government could be looking to raise taxes and cut spending to cover its own budget shortfalls.

Ratings agencies have already downgraded British government debt – essentially they are highlighting the risk that the government might not be able to meet its debt obligations.

It is, unfortunately, a self- perpetuating cycle and conditions appear ripe, although far from certain, that the UK could experience some form of stagflation in the near-term and investors need to remain alert.

Four indicators that investors should keep an eye on:

  1. Stagflation-linked assets such as commodities, gold, and energy stocks should see prices rise while recruitment and housebuilding stocks, and bond prices should fall;
  2. A rise in underlying inflation, which includes food and energy prices and may happen ahead of a rise in the headline inflation rate;
  3. A slowdown in consumer spending and downbeat reporting from retailers;
  4. A rise in unemployment and bleak updates from recruitment firms.

Should global investors care?

While the UK is in the eye of the storm there are risks of contagion. Brexit could encourage other euro -sceptic European nations to follow suit and hold similar referendums, putting the European project in jeopardy.

There is also the unknown outcome of the ongoing measures adopted by governments and central banks to reflate the global economy.

While there are currently few signs that the trillions that policymakers have injected into the economy will have sudden boost to inflation, the prospect is still there, and if it comes it could be sudden and violent. This could have global consequences.

What should investors do?

Consider their portfolio positions carefully. Diversification remains the key. Stagflation is not yet a real ity and might not even come to fruition, so positioning solely for it could leave investors over exposed to the flip -side.

Additionally, there might also be a risk-premium attached to some of those assets which might be considered a stagflation hedge, in other words, you might be paying much more than you otherwise would have.

A balanced portfolio offering some protection for the worst case scenario and risk to offer the chance of a higher rate of returns should provide a suitable hedge against stagflation.

 

Important Information
This is prepared by Schroders for information and general circulation only and the opinions expressed are subject to change w ithout notice. It does not constitute an offer or solicitation to deal in units of any Schroders fund (the “Fund”) and does not have regard to the specific investment objectives, financial situation or the particular needs of any specific person who may receive this. Investors may w ish to seek advice from a financial adviser before purchasing units of any Fund. In the event that the investor chooses not to seek advice from a financial adviser, he should consider whether the Fund in question is suitable for him. Past performance of the Fund or the manager, and any economic and market trends or forecast, are not necessarily indicative of the future or likely performance of the Fund or the manager. The value of units in the Fund, and the income accruing to the units, if any, from the Fund, may fall as w ell as rise. Investors should read the prospectus, available from Schroder Investment Management (Singapore) Ltd or its distributors, before deciding to subscribe for or purchase units in any Fund. Funds may carry a sales charge of up to 5%.

 

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