13 things millennials should know before investing

There was a four-year gap between the first time I said I was going to start investing and when I actually started investing.

The reason why my uptake was slow was because I never felt like I knew enough to make an informed decision about which stocks to buy and when to buy them.

I was always terrified that the company would go bankrupt and I would lose all my money, or that a stock bought today would decline in value tomorrow, and I could have saved a few dollars had I waited for a better deal.

Although I am by no means an expert now, as someone who has been-there-done-that, I do have some tips about taking the leap into investing.

First, do your homework. I don’t get as anxious before I make an investment nowadays because I’ve done my homework and I’m confident about the company that I’m putting my money into.

Secondly, take emotion out of it and avoid the urge to act on every dip and spike in the market.

It’s good to know what’s going on in your portfolio, but obsessing over mini market movements may cause you to make rash decisions instead of informed ones.

Third, if you’re unsure about where to begin, don’t be afraid to ask for help. I was embarrassed to ask basic questions because it felt like everyone else knew what they were doing.

Once I got over my ego and started reaching out to friends and family, compiling all the different perspectives and tips helped me a lot.

Want to start investing but don’t know how to?

I asked Jarrad Brown, a Fee-Based Financial Planner with Global Financial Consultants Pte Ltd, and the experts at SYFE what they thought millennials should know before investing, and these are their top tips.

1. Consider all factors and risks 

“Liquidity, tax exposure, costs, brokerage, FX risk—all these factors must be assessed when determining where you’re going to be investing. Do your homework,” Jarrod says. FX or forex, refers to the marketplace where national currencies are traded.

“Did you know that the Australian Dollar (AUD) has depreciated by approximately 38per cent against the Singapore Dollar (SGD) in seven years?

"If you were planning to spend your investment earnings in Singapore, ignoring that FX risk would have been a costly oversight. Pay attention to your FX risk.”

2. Start investing early 

A Syfe expert advises: “The sooner you begin investing, the easier it will be for you to reach your desired financial goals, simply because you have more time to enjoy the benefit of compounded earnings.

"When you receive earnings on your initial investments, reinvesting that interest allows you to grow your wealth exponentially over an extended period of time.”

3. Stay informed 

“Financial markets and conditions are constantly evolving, and in order to keep up, it is important to stay up-to-date with the market developments.

"Continue to educate yourself by engaging with reputable print and online resources, videos and seminars,” a Syfe expert says.

“Take advantage of free workshops and reading materials that banks and companies such as SYFE offer, and if you feel that you could benefit from more personalised sessions, talk to a financial advisor or planner, many of whom offer complimentary consultations so you’ll know what you’re getting into.

"Lastly, there is no amount too little, some investment platforms don’t even require a minimum starting balance, so invest what you have and watch it grow over time!”

4. Rebalance, rebalance, rebalance 

Jarrod says: “Vanguard estimates that over 91 per cent of your overall returns will be determined by your asset allocation and ability to rebalance regularly.

"Far too many get focused on this stock or that stock, and ignore their exposures to the key asset classes, including equities, property, fixed income and cash, and their peril.”

5. Be cautious of cost 

A Syfe expert advises, “Though it’s very hard to guarantee how much return you could get on a portfolio, one thing that can be controlled is cost.

"You should avoid buying into high-fees solutions, as these might feel feasible in the short-run but it really adds up to a large amount over time.

"Instead, opt for low-cost solutions in order to maximise the impact of your returns in the long-run.”

Jarrod agrees: “There are many low-cost brokerage and share trading platforms out there, but how are they structured? Are the investments actually in your name or will you go broke if they do?

"Do your homework and ensure the platform aligns with your overall investment goals.”

ALSO READ: My 7 timeless investing rules for stocks after 10 years in the market

6. Don’t try to time the market 

“One of the great aspects of being Warren Buffett is that when you make an investment decision, many will follow, and many times it becomes a self-fulfilling prophecy.

"However, this is not the case for your average punter. Forget trying to time the market, and ensure your portfolio is appropriately allocated,” he says.

An expert from Syfe agrees. “Timing the market is a strategy used by investors who are willing to take a risk in hopes of a big payday.

"When they ‘time the market’, they buy an asset (stocks, real estate, etc.) when it’s priced lower than usual and sell it when it reaches a high point.

"Though it sounds like a great plan, there is risk involved — and even the most experienced of investors cannot successfully make their money back — let alone make a profit — all the time.

"The best way to generate stable returns is to invest regularly and for the long term, as this will help you average out your returns through high as well as low periods.”

7. Stay within your risk tolerance 

“When it comes to risk, a good rule of thumb is that you should never lose sleep over your investment decisions.

"Every individual has a different risk appetite and it’s important for you to have a portfolio which is well within your tolerance.

"This will ensure you stay calm during potential low periods, since a risk-managed portfolio helps you ride out temporary market conditions and bring you long-term returns,” a Syfe expert says.

8. Should you invest long-term or short-term? 

“Investing over a longer time period allows you to take on a higher risk portfolio, as you can ride out temporary losses and still get good returns over time.

"However, if you are investing over a shorter time period, it is better to choose low-risk investments or cash equivalents (such as savings accounts, Singapore Government Bonds, etc) to ensure that you don’t lose if you need to sell during a low time in the market,” a Syfe expert advises.

9. Do you need a financial adviser? 

Jarrod advises: “If you would like guidance in assessing your goals and you don’t have a great deal of experience managing your own investment portfolio, seek out the guidance of a professional adviser.

"This could be a one-off session to put you on the right track or ongoing advice—there are many options.”

He adds, “If you are working with a financial planner, are they putting their money where their mouth is and investing in the same stocks or underlying investments? If not, ask the question why.”

9. Diversify your portfolio 

“This is the typical cycle of a day trader who builds false confidence and then loses the lot, only to look back on the experience and outcome to learn they would have been far better off investing in a diversified portfolio and rebalancing steadily,” Jarrod says.

A Syfe expert agrees: “Financial assets across different sectors (energy, healthcare, technology, etc.), classes (stocks, bonds, commodities, etc) and geographies perform differently at different points in time.

"Diversifying your portfolio across these factors, which just means investing in different types of assets, will help you have a lower level of risk level, which in turn will allow your wealth to grow more consistently.”

10. Review your portfolio 

A Syfe expert advises: “It is important to review your investment portfolio periodically and to evaluate its performance.

"Look at more than just the numbers—consider your goals moving forward and determine if your investment portfolio will help you reach them. If yes, then keep investing as you are.

"But if not, then change-up your investment strategy. Remember, a good portfolio today may not be the best portfolio tomorrow!”

11. Automate your investments 

“To make sure you are investing consistently, you can plan for a set amount of your income to be sent automatically to your investment account each month.

"This will help you stay on track for your savings goal and ensure you are not tempted to spend the funds on your next shopping trip or holiday,” a Syfe expert says.

12. Make use of CPF SA 

“Your CPF Special Account earns you 4 per cent interest on your savings (and 5 per cent on the first $60,000), with an almost zero level of risk.

"Your savings in this account will continue to grow at a reasonable rate without fear of losses, making it an extremely valuable tool for planning ahead.

"It’s a smart move to invest any of your extra funds in it, so that you have more when you retire!” a Syfe expert advises.

This article was first published in CLEO Singapore.