Financial Freedom SG

In anything we do in life, we want to seek improvement. So it is the same for the field of investment. How can we improve as investors?

7. Control Costs

There are a lot of things that are beyond our control in investing. But the one thing we can do is to look at costs. Do you really want to put all your money into unit trust/managed funds when you can find DIY investments like the Exchange Traded Funds (ETFs), index funds which have a lower transactions costs. Plus lower management fees.

6. Learn From The Past

As an ex-history teacher, I always tell students that people who don’t look at history tends to make the same mistakes. The funny thing is that many investment prospectus have the disclaimer that “Past returns is not indicative of future returns.” So you can learn the wrong history. So what do you learn? I prefer to use history to reinforce your investment mindset. To steel yourself so that armed with history behind you, you are calm and collected in bear markets. While being pessimistic and looking to square off positions in bull markets.

5. Balancing Risk-Return

This is one of the more difficult decisions to make as an investor. Do you put your money in ‘safe’ fixed deposits and savings accounts? Or do you take in more risk by investing in the stock market? Then become caught up by the Internet bubble like in 2001? Without risk, there isn’t any significant returns to speak of. And if you chase super high returns, be wary of losing it all. There is no such thing as a free lunch.

4. Diversify

One way to balance the risk-return decision is to use diversification. If you buy the whole market, you reduce the risk of buying a significant holding in Enron in 2000 or a Citibank on its way down in 2006-2007. You have them, but in small amounts. You get hit, but by a lot less than people who bought chunks of it. Also, don’t just look at one investment class but different sectors, different instruments and balance it around. When you have a significant retirement portfolio, your decision is what percentage of each you want.

3. Have a Cash Reserve

You can have lots of investment ideas. Without the money to buy it, it is worthless to you. Worse, if you suddenly have an emergency and need the money, you may have to liquidate your investments to raise cash. So it is better to have it ready in your bank account to meet these needs. Then you almost never have to make forced sales of your stock position.

2. Learn From Investment Legends

Warren Buffett, Peter Lynch, George Soros, John Templeton, Anthony Bolton, Michael Burry etc.

1. Learn From Your Mistakes

I have made many mistakes. The best way is to pay the costs, learn from it and remember it the next time the same situation arises.

Sometimes, the mistakes you make the first time around makes you learn the wrong lesson. Like what happened to the French during the start of the First World War. They had a very offensive mindset to attack with ‘elan’ whenever possible and discovered the horrendous costs when their troops were machine gunned or hit by artillery.

After the war, they built the best fortifications in the world in the form of the long Maginot Line to protect their troops and prepare for a defensive war. And we all know what happened. The Germans devised the Blitzkrieg and sent the tanks around the Maginot Line in World War II.

So learn from mistakes but don’t learn the wrong lesson.