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1 Useful Tip for New Investors

Credit: andrechinn

The recent Invest FAIR 2015 which happened over the past weekend was a great opportunity for Foolish investors to gather and talk about investing.

As one of the Fools at the fair, I had the chance to talk to people from all walks of life. Among those I had the privilege to meet, I found that there was a fair number who are interested in investing and who are just starting out.

I remember the butterflies in my stomach when I first clicked on the “buy” button ten years ago to purchase my first investment. It wasn’t too different from learning how to drive a car.

At first, learning to drive can feel intimidating. You must keep your feet on different pedals, both hands must be on the steering wheel, and your eyes must focus on three different mirrors and the windshield as well. For many, it can be overwhelming.

To help newer investors deal with the stresses and anxieties they may encounter, I have one useful tip.

Ease into the market

When we learn how to drive a car, we do not start by flooring the accelerator pedal. Similarly, the first tip to consider for new investors would be to slowly ease their money into the market.

To illustrate, let’s use an example.

If a new investor is putting aside savings of $1,000 per month to invest, it may be useful to consider dividing up the savings in two portions and only invest $500 per month. The other $500 can be put aside as a cash cushion. This way, the new investor would have achieved two things by the end of the first year: invested $6,000 while having another $6,000 as cash on hand.

This approach can help the new investor pace themselves for the multitude of new emotions that will come with investing as the cash on hand can act as an emotional-ballast. It’s normal to feel uncertain when you are starting out, just like it’s normal to feel the fear of losing you money or the exhilaration from making your first buy.

Instead of rushing headlong into the flood of new emotions, consider easing into the market. After all, human emotions are what tends to lead investors astray in the stock market.

Thinking long term

Ultimately, as Foolish investors, we look towards the long-term for our best gains in the stock market.

As an example of what long-term investing can bring to the table, the SPDR STI ETF (SGX: ^ES3) – a proxy for Singapore’s market barometer, the Straits Times Index (SGX: ^STI) – has turned in a total annual return (inclusive of reinvested dividends) of 7.9% from its inception on 11 April 2002 up till the end of July this year. In other words, an investor who invested in the SPDR STI ETF more than 13 years ago could have nearly tripled his money by first investing and then doing nothing.

No one knows for sure what the months or years ahead will bring to the stock market, so consider taking baby steps and keeping your eyes on the long-term.

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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 contributor Chin Hui Leong doesn’t own shares in any companies mentioned.