Words of wisdom for those who are investing
Investing can be exciting, but if done wrong, can be detrimental. A lesson I learnt when I first began my investment journey without much knowledge, following the advice of my friends to invest in various stocks with ‘high growth potential’. As a result, I suffered close to 80% losses in my portfolio. Hence, here are 3 words of wisdom for those who wish to begin their investing journey.
1. Never chase returns
Though the idea of high returns might seem attractive, it always comes with a risk. Investments do not just go up in a straight line. With the possibility of gaining 20% returns also comes with the risk of your asset dropping beyond 20%. In this current economic downturn, many stocks that soared in the past 2 years, such as Zoom, are now down 70-80% from their all-time highs.
2. Time in the market beats timing the market
Not about how much you put in, but when you start investing. The Rule of 72 is an important formula used to calculate how long it’ll take for an investment to double in value, based on any given rate of return. By staying invested, we are able to ride out the short-term volatilities in the market, and take advantage of the effect of compounding.
3. Risk versus Volatility
Quoted from Warren Buffett, “Risk comes from not knowing what you are doing”. Many of us have this misconception that volatility = risk. Investing is volatile, where prices of any asset fluctuate over time. Risk refers to the probability of losing your capital, and this happens when you do not have the right knowledge or information before buying various stocks.
All in all, only invest in what you understand. Every bit goes a long way in your accumulation journey, for your goals.
Mervyn Lee
Financial Services Consultant
