Do you enjoy investing? Now, be honest. Does your heart skip a beat when you trawl through the different stocks that you can buy? My feelings won’t be hurt, if you tell me that you don’t. But whilst you might not be overly excited about buying and selling shares, you probably know that you need to do something constructive with your spare cash. Leaving it to fester in a bank account is just not good enough. But I suspect, like many, you can think of better ways of spending your spare time than monitoring an investment portfolio. I know I…
Do you enjoy investing? Now, be honest. Does your heart skip a beat when you trawl through the different stocks that you can buy?
My feelings won’t be hurt, if you tell me that you don’t.
But whilst you might not be overly excited about buying and selling shares, you probably know that you need to do something constructive with your spare cash.
Leaving it to fester in a bank account is just not good enough.
But I suspect, like many, you can think of better ways of spending your spare time than monitoring an investment portfolio. I know I do, especially in Singapore where there is so much happening.
So this is what I do.
Ignore hot sectors
I never follow the latest fad.
Chasing the latest “thing” can burn awful holes in our pockets. But despite knowing about the perils of following the latest craze, many investors fall for the hype that we need to buy hot sectors to make the best returns.
As boring as it might seem, some of the best long-term returns can be achieved by buying shares that grow steadily and pay regular dividends.
It might, for example, be unfashionable to admit that we own shares in Real Estate Investment Trusts, industrial conglomerates or consumer staples.
But there is nothing unglamorous about compound annual returns of more than 10% over long periods. It could mean a doubling of our investment in seven years or less.
For instance, since 2005, shares in Jardine Cycle & Carriage (SGX: C07) have more than quadrupled. Elsewhere, the value of Dairy Farm (SGX: D01) shares has increased over four fold, and local bread maker QAF (SGX: Q01) has delivered an annual total return of over 13%.
Try to avoid buying and selling regularly to make money. Overtrading is very easy to do. But it can also do serious damage our wealth.
Each time that we buy and sell a stock, we inevitably incur charges both on the way in and also on the way out. We cannot avoid paying commissions to our brokers and sales tax to the government.
But just because we have to pay it once, it doesn’t mean that we have to pay it over and over again.
It can be tempting – very tempting, indeed – to consider taking profits on our investments because there might be a small gain to be had.
But bear in mind that 10% or 20% of instant gratification could pale in comparison to 200% or 300% of delayed satisfaction, if we would only buy and hold for the long term.
Some people might like to think that they can successfully time the market. But no one ever has. If it was really possible to predict share prices, then somebody would have made billions by doing it, already.
One of the secrets to successful investing is to minimise risk whilst maintaining an attractive return on our investment at the same time.
Can that really be possible?
Perhaps the best ways is to diversify by holding a wide portfolio of shares. It is reckoned that a portfolio of around ten to 15 companies in different sectors should reduce risk sufficiently for most investors.
These companies should represent some of our best investing ideas. If they don’t, then why are they in our portfolios in the first place?
By focussing on these companies and continually adding money to them when we can, we could achieve attractive long-term returns. I call them the shares that I can retire on.
Some of those shares have been in my portfolio for about as long as I can remember. I see no reason to dispose of them. In fact, I continually add to them when possible.
So start building a portfolio of shares that you can retire on, today. It could be the best investing decision that you ever make.
A version of this article first appeared in Take Stock Singapore. Click here now for your FREE subscription to Take Stock - Singapore, The Motley Fool's free investing newsletter.
Written by David Kuo, Take Stock -- Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.