After a lacklustre run in 2016, the economic outlook was originally expected to pick up in 2017 and 2018, especially in developing markets and economies, according to the World Economic Outlook Update. The inauguration of U.S. President-Elect Donald Trump on January 20th, however, has resulted in a wide array of possibilities. How will this affect investors around the globe?
Chief Investment Strategist Terence Tan of The Income Mastery Programme (IMP), a prominent Singapore investment literacy firm, shares five timeless tips on how best not to just tide through, but also to profit regardless of the economy.
1. Know Your Financial Roadmap
While getting started on investing as early as possible is great, it’s important to first know how much you can manage. What is your ‘net worth statement’? Cash, credit cards, utilities, loans, income etc. Do you have what is necessary to start investing?
Revisit what insurance plans you’ve got, and fill those gaps first. Nothing’s more important than knowing that you’ve got yourself covered should anything happen to you.
We also cannot emphasize enough on the need for a rainy-day fund. The general rule of thumb is to have three to six months of your nett pay, readily available. Read more from another article of ours here.
Knowing your risk tolerance is also an important factor when considering what sort of investments you are comfortable taking up. There is no ‘one-size-fits-all’ strategy that will suit every individual. The role of a successful investor is to decide on a few types of investments that best fits him or her, and then sticking to it.
2. Capital Gain is Just One Surrogate Indicator
A common mistake made by many is relying on capital gains as means of a company’s financial performance. While it is an important indicator of the health of a stock, it is also important to consider other variables while assessing the suitability of a stock. Capital gains should be interpreted contextually and used in conjunction with other forms of data. It is important to ensure that the company one is investing in has a strong financial background and history. In as little as two seconds, one should know whether a company is safe to invest in. No, we’re not exaggerating.
Data is readily available on the Internet. Some people pay to get financial reports of companies. Do you really need all the data in those reports? What is it you should be looking for?
3. Never Put All Your Eggs In One Basket
Let’s take simple stock investing for example. You may have great confidence in, say, Google. It’s hard to imagine life without it, we know. But no one can guarantee that they will remain that way forever. Remember how Samsung took the world by storm when Apple was dominating the market for the longest time?
How should I diversify? A simple tip to safe investing, is to have a foot in more than one business category. The reason is fairly straightforward: so that when one sector is experiencing difficulties, it does not affect the other sectors that you’ve invested in, and the latter can remain steady. Keeping our Google example, it is a Search Engine, primarily. A company that would be completely different from it, is Wal-Mart.
Google does have other strong products, like Maps and YouTube. You should take note of these as well, to be certain that you are stepping out of the business category for other investments.
4. Investing Should Always Stay Simple
Different investors use different strategies to accomplish their financial goals. An investor who switches between strategies is more likely to experience losses than gains; constantly doing so only makes room for greater potential mistakes. A starring example of an investor who has achieved great success through dedication to one strategy is Warren Buffett. Despite criticisms from the media and naysayers at different points of his career, he insisted on his investment principles and effectively grew his portfolio to tremendous amounts.
There are times when a portfolio suffers because of its overly complex settings, sometimes with even the investor unsure of the exact principles to follow. Modest as this piece of advice may seem, it rings true for some of the most accomplished investors in the world, Warren Buffett included. As said by the investment heavyweight himself, “The business schools reward difficult complex behaviour more than simple behaviour, but simple behaviour is more effective.”
5. Focus On The Right Things
Substantial short-terms gains may attract those who are new to the market. But adopting a long-term perspective and dismissing the ‘enter and make a killing’ mentality is important for any income investor. While this does not necessarily mean that it’s impossible to profit through active short term speculations, investing and speculating involve very different ways of making gains from the market. Income investors learn about the build of the companies they invest in, rather than watching the news. Other traders rely heavily on market conditions.
Neither investment style is definitively better than the other – both have their pros and cons. But income investing involves more control and reduced risks, profiting for the long term. It’s why Terence’s current record stands at 220 wins out of 222 live trades, and a whopping 198 winning trades in a row.
About Terence Tan and the Income Mastery Programme
Terence Tan is the Chief Investment Strategist of Giants Learning Technologies Pte. Ltd., and the creator of the 1st and Only Income Investing Programme in Asia Pacific. He is also the Founder of First Traders Network, a company that he established in Malaysia. He graduated from the University of Queensland in 2003 with a Bachelor of Commerce (Accounting & Finance) and was awarded the Deans Honors Roll.
Terence had accumulated vast Investment Management experience since graduating from university, and had since managed multiple accounts of funds averaging more than USD$2.5 million.
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