Teach a man to fish (or in this case, invest!) - Part 2

Just over a week ago, I shared about how the current economic situation could make for a favourable investment climate. Since then, a number of notable events have happened – the oil crisis has worsened, some companies have fallen short in their Q1 earnings reports, and the economy continues to suffer as a result of COVID-19 and its lockdown measures that bring some industries to a standstill. 

On the investment side of things, during our 24th Adulting 101 Workshop, a participant shared that she eagerly wanted to start her investments when the S&P 500 experienced a very significant tumble. With a crazy 35% plunge over about a month, and still remaining about 18% down from its February peak after some recovery, the drop signifies an opportunity to park your money at a “discount”. Markets always go up in the long run, and downturns, such as the one we’re experiencing now, provide an opportunity to buy in at a low price. Assuming that you pick the right stocks, investments can be expected to come up high upon recovery.

As I delve into some investment specifics, I’d like to highlight that there is no standardised investment strategy. If there were, everyone would be rich! At the end of the day, it’s always better to develop your own personalised strategy, that suits your needs and means. 

Investing 101

Let’s start with the basics – how much should you invest? Or rather, not invest?

This boils down to the fundamentals of money management. First off, always ensure that you have sufficient emergency funds, which should amount roughly to six months’ worth of fixed expenses, or even slightly more,  as a precaution amid the ever-changing COVID-19 situation. Do also ensure that your savings are on track to hit your short term goals (such as a wedding or housing deposit) by the time you need the cash. You can also set aside some happiness funds if needed, whether it’s for shopping, or travelling once the COVID-19 situation has cleared. 

What you’re left with is money that you can grow, or your war chest. You may be feeling extra cautious with this money amid today’s volatile and uncertain times, but I urge you to remember that while cash may be king in the short term, in the long-term, the king is killed by inflation. Inflation is inevitable, but the way to keep up with it is to make your money work hard for you. With the climate the way that it is, it’s a great time to buy in and start this investment journey.

Things to consider when investing

Most importantly, reflect on your objective behind investing. Is it to reach financial independence? Or to accumulate enough for your dream house? Or are you hoping to get rich quick?

If your objective is to make a quick buck, I propose that you look at investing as a long game instead. For the market to progress from trough to peak, it takes at least eight to ten years. Staying in the game thus ensures you maximise the growth of your money, instead of exiting prematurely. Holding your investments for ten years or more also reduces risk dramatically, as you are able to ride out the lows and eventually enjoy the highs. Another benefit of investing for the long haul is reaping compounded  interest. Albert Einstein is reputed to have said that compound interest is the eighth wonder of the world – if you choose the right place to park your money and stick through with it over time, your returns will roll over and continue to yield compounded ones.

In the words of investment guru Warren Buffet, “The stock market is a device to transfer money from the impatient to the patient.” Be one of the patient ones that resists the temptation to exit the market early, and reap these long-term benefits. 

Next up is to diversify your portfolio, as a diversified portfolio is anyone’s best defence against a financial crisis. 

In a diversified portfolio, your dollars are spread among different asset classes. This  lowers overall risk because no matter what the economy does, some asset classes can be expected to benefit. If your portfolio is sufficiently diversified, any unforeseen event is unlikely to hit your entire portfolio badly, and as the falls in some areas will be covered by rises in others. 

Finally, it is critical to invest with logic, rather than emotions. Take the current stock prices of Apple and Microsoft for example. They may have taken a hit in the current climate, but fundamentally, has anything changed? While they’ve experienced short-term disturbances in their operations, these are still stellar companies that can be expected to do well in the long run, and thus might be stocks you want to own. Do your homework and fundamental analysis on these companies, and understand their financials, plans and strategies. Read the news and stay updated, so you can make knowledgeable investment decisions. Personally, I browse resources like CNBC, Bloomberg and Motley Fool religiously. Go out there and be a sponge!

Taking the next step

Now that we’ve covered the basics, how do you go about taking the next step? To begin, you’d have to find an investment account or a stock broker that suits you. Do note the fees charged, the structure, ease of use, as well as any incentives or bonuses you can use to your advantage. 

As highlighted earlier, an important and inextricable part of this process is “investing” your own time and effort to research. The Millionaire Mindset Intensive recommends spending 30 to 60 minutes a day reading up on how to invest and grow your money, and then applying it. 

Finally, if you need some guidance or would just like to have a chat on how to get started on your own investment journey, please feel free to reach out! I’m just a call, text, DM or Zoom call away, and I would love to be able to help you in your journey toward financial freedom.

Whether or not you choose to embark on this journey alone or with someone alongside you, the most important step is to take action. Learning without doing is like eating without digesting – you may follow @yourcashcow on Instagram for some quick financial insights from my team and I, or drop me a message if you have any questions. Thank you for reading this far, and have a good weekend at home!