7 Things To Think About When Investing

byJoanne Poh
  • May 18, 2023
  • 5 mins

In order to grow your wealth, investing is essential. But before you dive in, there are a couple of things you must do to ensure you are making good decisions and setting yourself up for financial success. Once you have started, there are also a few guidelines that will help you maximise your gains and avoid taking on too much risk.

Here are 7 things to think about before and while investing your money. 

Evaluate your financial situation.
Investing should be done with a goal in mind, so take the time to sit down and evaluate what you hope to achieve with your investments. You may have several different goals in mind and they may  vary in how soon you’re looking to achieve them. 

A short-term goal might be to save up for a big-ticket purchase like a car or wedding, a medium-term goal could be to save up for your child’s education and a common long-term goal would be to be adequately prepared for a comfortable retirement.
Define your risk tolerance - how much risk you
In order to choose the right investment products, you’ll need to decide your risk tolerance.

High risk investments usually offer the chance of achieving high returns, but also come with a higher risk of losing some or all of your money. Lower risk investments come with a lower chance of loss, but also usually offer lower returns.

Your risk tolerance will depend on many factors, such as your age, the amount of time before you wish to achieve your goal(s), your financial commitments, the amount of money you’re investing and your personality.

Never take on more risk than you are comfortable with. There are always low risk investment options for those who do not wish to take on high risk.

Before you start to invest, make sure you first set aside enough money for an emergency fund – cash savings that enable you to stay afloat in emergency situations, such as sudden job loss, an accident or illness, or in case you need to incur an unexpected expense, such as if your fridge breaks down at home. 

A typical emergency fund should be equivalent to 6 to 12 months of your monthly expenses, depending on your financial stability.

Maintaining an emergency fund prevents you from having to liquidate your investments at an importune time or go into debt. You should therefore build up an emergency fund before you begin investing. If ever you do have to dip into your emergency fund, make it a priority to top it back up before continuing to invest.

Diversify your investments.
Often, while one type of investment asset may do very well, another type may do badly or only yield average returns. So resist the urge to over-commit to a single instrument that has done well for you in the past. The idiom “don’t put all your eggs in one basket” is very apt here. 

Diversification of your portfolio is key. You can do this either by handpicking a diverse portfolio of assets, or investing in products that already contain a diverse range of assets, such as savings or investment plans managed by professionals.

If you invest too heavily in one thing such as a single company’s stock, your risks of losing everything or suffering great financial loss rise. Make sure you balance out your portfolio with some lower risk products that can cushion the blow of any losses.
Dollar cost averaging is important.
Investing regularly and consistently can yield good results, especially for those who don’t have the time to constantly monitor the markets. The dollar cost averaging strategy enables you to invest regularly, while protecting yourself from risk.

How it works is that you invest a certain sum of money on a regular basis over a long period of time. For instance, you might choose to contribute a fixed amount of money to an investment plan every month over a period of 15 years.

Investing in this way can be less risky than making investments as and when the mood strikes. You do not run the risk of losing all your money by investing at an ill-chosen time, and the effects of fluctuations in the market are cushioned.

Another advantage of dollar cost averaging is that it enables you to start investing early and reap the benefits of growing your money over a longer period of time, rather than having to wait for a good time to enter the market.
Rebalance your portfolio every once in a while.
Over time, the proportions of your wealth being held in each type of asset will shift. To keep to the same asset mix you’re comfortable with, it’s good to regularly rebalance your portfolio. 

Rebalancing simply involves buying and/or selling off certain assets so that the distribution of your wealth fits with your financial plan. Often, you might be able to use the gains from selling overweighted assets, which tend to be highly-priced, to buy underweighted assets. 
Beware of fraud. 
Investment scams are nothing new to Singaporeans, with many sophisticated techniques, such as the infamous gold buy-back scams. 

Be suspicious of any “investment” scheme that promises high returns at little to no risk. If it sounds too good to be true, it probably is. All investments carry some degree of risk, and legitimate ones promising high returns usually come with a high degree of risk.

Other red flags to look out for include pressure tactics designed to cause victims to sign up for fear of losing out, such as the claim that the scheme is only open for a limited time or that special rates will be offered for early sign-ups. Also be wary of any glowing testimonials or a stellar track record, as these can be easily fabricated.

If you are offered a commission for referring people to an “investment” scheme, beware, as this usually does not happen with legitimate investments and could be a sign of a ponzi scheme.

On the bright side, the Singapore Deposit Insurance Corporation protects owners of life insurance and general insurance from failure of the insurer, provided the insurer is licensed in Singapore by the Monetary Authority of Singapore. So you have much less to worry about when buying plans from such insurers.

Taking your first steps into investing need not be daunting. One way to do this is to consider investment-linked plans, like Income’s WealthLink, Invest Flex or AstraLink. Or, if you don’t want to take this journey alone, you can always speak to an Income advisor for help. They’ll assist you in reviewing your financial goals and taking the right steps to grow your wealth.

Tags: Investments
With over a decade of experience writing, Joanne Poh specialises in insurance, finance, real estate, fintech, and travel. Her work has been featured on Yahoo!, MSN, AsiaOne, and herworldPLUS.

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