How To Invest For Yourself, Seriously

Oh No! The washing machine has just gone on the blink.

Should I call out the repair man? Of course not – not a chance with their outrageous call-out charges. There are some things we easily can do ourselves.

So, get out the manual. Find out what’s gone wrong and fix it yourself. Here endeth the first lesson on how to save money by doing it yourself.

Lesson two

Around 15 years’ ago, I made a conscious decision to take control of my own pension.

It wasn’t too long after I had joined the Motley Fool. Warren Buffett was right when he said it pays to hang around with people who are smarter than you.

Until then, my retirement fund had been managed by one of those professional insurance companies. The company didn’t do a bad job. But they didn’t exactly shoot out the lights for me either.

It was as you would have expected – safe but not spectacular. Or as Peter Lynch once said: “If you invest like an institution, you’re doomed to perform like one, which in many cases isn’t very well.”


But then one day I plucked up the courage to invest the money myself. It was a financial turning point. It was also nerve-wracking.

I knew I had the skills. I also knew I had the knowledge. But it was nevertheless daunting to think that I was going to take sole charge of my own retirement fund.

Thing is, you can read all books in the library. You can study all the companies in the stock market. You can even construct some of the most sophisticated spreadsheets known to man.

But it still doesn’t quite prepare you for the moment when you have to decide what shares to buy for yourself. Writing out a cheque quickly separates theory from practice. So what do you do?

Follow the market

In my case, I have to thank something called Exchange Traded Funds. They were only just beginning to take a foothold in London.

The one that I chose tracked the UK’s FTSE 100 index. In Singapore, an equivalent tracker would either be the Straits Times Index Exchange Traded Fund (SGX: ES3) or the Nikko AM Straits Times Index Exchange Traded Fund (SGX: G3B).

Watch our 60-second video explaining Exchange Traded Funds here .

These funds are quoted on the stock market. So they can be bought and sold in the same way that we buy and sell shares.

They are designed to replicate the performance of a chosen index. So if the index goes up by 1%, the value of the fund would go up by 1%. When the index goes down, the fund’s value would fall by a similar proportion.

Better or worse?

I committed a small portion of my cash to the index tracker, knowing that the very worst that happens would be a performance in line with the market.

I couldn’t really do any worse than a fund manager, who would charge me for the privilege. If anything, I might even outperform the majority of fund managers, as I wouldn’t be paying unnecessary fees and administration charges.

As time went by, I started to commit increasingly more of my cash to the stock market with my own stock picks to run alongside the Exchange Traded Fund.

Before long, I was fully invested. In other words, all my cash had been deployed to buy the shares that I wanted.

There are a couple of interesting things to note.

Beating the market

Over the last 15 years, I have remained fully invested, save for the dividends that are continually generated by my retirement fund. I reckon that I have today collected and reinvested more in dividends than the original amount of money that I had started with.

The other thing to note is that many of the shares in my portfolio have outperformed the index tracker. And yet, I still keep my index tracker. Why would I?

For me it is a constant reminder that stock picking is about beating the market. We should measure our success as a stock picker by comparing our performance against a benchmark, such as the Straits Times Index.

We should also consider any dividends that we receive because investing is more than just a rising share price. It is also about the dividends we receive and how we allocate that money to achieve even better returns.

Warren Buffett once said: “Someone is sitting in the shade today because someone planted a tree a long time ago.

We too can one day sit in the shade of our very own money tree, if we plant some good trees today. So start putting down some solid roots now.

The Motley Fool's purpose is to help the world invest, better. 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.

Like us on Facebook to keep up to date with our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

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.