Singaporeans are known to be some of the world’s best savers. A 2012-2013 household expenditure survey from the department of statistics showed that Singaporean households spent around $4,720 each month on goods and services, compared to the average household income of $10,500.
That translates to around a 55% savings rate. As such, it’s no surprise to find Singaporeans with tens, if not hundreds of thousands in their bank accounts.
However, saving is just half the battle. Simply squirreling away your cash in a low-interest savings account is detrimental to your financial health. If you’re not investing your money, you are letting inflation eat into your spending power. So, I’ve come up with a list of three things that will help you better manage your investment portfolio.
Divide your portfolio
While some professional investors advise having a concentrated portfolio of high-conviction stocks, the retail investor is better off with a highly-diversified portfolio. From personal experience, a single position should not take up more than 5% of your entire portfolio.
Too often, I hear retail investors complaining of poor returns because a single large position has performed poorly, dragging the portfolio’s overall returns down.
Yes, a concentrated portfolio can produce outsized returns but the risk of poor returns or loss is exacerbated if just one big position goes wrong. Even the best investors make bad bets, and if you’re just starting out, the chance of investing in an underperforming stock or bond is even greater.
Assess your risk appetite
Do not simply assume that just because one of your friends is fully invested in stocks that it means you should be, too. Everyone has their own risk appetite and financial goals.
Your choice of asset class is also determined by your investment horizon and ability to take on risk. A young investor with S$100,000 in the bank and no kids to feed should be able to take on more risk than a retiree who still needs to support a child through university.
By considering your risk tolerance and ability to take on risk, can you make more informed decisions on what to invest in.
Take your time
Most importantly, if you’re thinking of avoiding those hefty management fees by managing your own portfolio, it’s essential that you educate yourself on the basics of investing.
I cannot stress this enough: Be informed about the types of asset classes available, be it company stocks, real estate investment trusts (REITs), fixed income, or other alternative investment classes.
Learn about the pros, cons, expected returns and risks of each asset class before putting your hard-earned money into any investment. Investors looking for a quick buck often rush in headfirst without doing sufficient due diligence.
A final word of caution. Investing can be even worse than simply putting your money under your pillow if you don’t know what you’re doing. If you tend to make rash decisions, I advise you to invest in index funds, or simply keep your money in the bank. Your $100,000 will be safer there rather than you losing it by dabbling in investments you don’t understand.
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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 Jeremy Chia doesn’t own shares in any companies mentioned.