Want to be able to sleep like a baby regardless whether you are in a bull or bear market? Then it’s important that you take the investment guidelines we have for you here seriously.
Remember, investments are mainly for the long-term and if you do it right, they can help you build a solid retirement nest egg.
Ready to get started on investing? We have 5 investment guidelines for you
1. Don’t use your emergency fund for investment
Emergency funds, as its name suggests, are for emergencies. If you put all your money into investments that cannot be liquidated fast enough or without a loss, then you are in trouble.
It may be hard to see three to six months (or more) of savings sitting there but it’s necessary to have enough money to tide you over unexpected bumps in life, such as sickness and loss of job.
To make it easier to accept, put your emergency savings in a higher-interest savings account.
Related: Here’s Why You Need an Emergency Fund and How to Get Started
2. Don’t lose money
Duh, right? Who sets out to lose money in investments? But if you don’t keep that in mind, it’s easy to end up only thinking about getting the highest return on your investment and potentially taking more risk in losing.
According to Tony Robbins who said in his New York Times Bestseller book, Unshakeable, “the best investors are obsessed with avoiding losses. Why? Because they understand a simple but profound fact: the more money you lose, the harder it is to get back to where you started.”
He even gave an example:
“If you invested $100,000 and you lost 50%, you now have $50,000. If you make a 50% return on that $50,000, you now have a total of $75,000. In reality, you’re still down $25,000. You’ll need a 100% gain just to recoup your losses and get back to your original $100,000.”
So, whatever you do, make sure you do all that you can to not lose money.
3. Aim for more reward, less risk
Don’t we often hear people say, “no risk, no reward?” While that is true, there is also such a thing as relatively less risk for more reward.
When you invest a dollar, you run the risk of losing it, so always ask yourself how do you maximise your reward (preferably three to five times) while minimising the risk of you losing the dollar.
Invest in credible products and don’t put money in something that you don’t understand, even if the potential return sounds tempting and your friends are throwing money into it. Do your research and always add a new egg into the basket only if it makes absolute sense to your portfolio.
An almost risk-free way to grow your retirement fund is to top up your Central Provident Fund (CPF). You won’t lose any money and CPF offers compounding interest that beats a lot of investment products out there.
Related: Beginner’s Guide to ETFs: What Types of ETFs Can You Invest In?
4. Diversify as much as possible
The market will always go up and down but no one can predict when up or down would happen. So, how do you minimise your downside regardless of the market situation? You diversify. Make sure that you have investment products in your portfolio that go in opposite directions of each other.
Diversify within asset classes and across different asset classes, markets, countries, and currencies. For example, when stocks go down, bonds usually go up. If you have both, you expose yourself to less risk than if you only had stocks.
At the end of the day, just don’t forget point 2 – don’t lose money.
5. Protect your earnings from tax
Wouldn’t it be nice if we could take home 100% of our investment returns? Well, sadly, our reality involves fees, fees, and more fees. And throw in our payable tax, we may be left with far less than we imagined. Was all the risk you took worth it? Maximise your tax reliefs and rebate to keep more money in your pocket.