5 ways not to lose money on the stock market
The recent bull-run in the Singapore Exchange and regional stock markets led by China has fueled an euphoria in equities. People ranging from working professionals, businessmen, office ladies, students, housewives are all talking about how to make money in the stock market.
But wait, how many of us really understand how a stock market works and what is it that we are risking our monies when we venture into it?
I started out investing in the SGX around 2003, just when the SARS crisis hit in Singapore. I was fortunate in that I got into SGX when the stock market in Singapore was on a bullish trend up to today. So what are the 5 ways I learnt not to lose money in the stock market？ （In fact, I have made decent returns each year for the last 4 years plus from investing in blue-chips on the SGX.)
5 ways not to lose money on the stock market
1. Decide how much you have to invest
This is possibly one of the most critical decisions you need to make as it is dependent on your income level, your expenses and the leftover for savings and investment. You may realise that you have not actually sat down to calculate how much investible savings you have. Some financial planners recommend that you should have at least 3-6 months in cash savings as a buffer before additional savings accumulated beyond this buffer can be used for investment.
If you have not decided how much investible savings you are willing to invest (and potentially lose - at least on paper), you should do it as the discipline and knowledge in knowing that you have holding power allows you to be more rational and less affected by the two emotions of fear and greed that strike all of us who invest in the stock market.
2. Determine what is your targetted returns and investment horizon
When I started out buying shares in the stock market, my targetted returns was to beat time deposits (fixed deposits) interest rates. Now that I have accumulated some experience in share investing, I raised my target to double that of time-deposits. Now time deposits yield about 2% plus for tenures of 3-6 months, hence my returns annually should be 4% plus. In addition, you need to know how long you want to keep your money. My strategy for the last 4 years had been to invest my savings into the market with an eye at selling and using the proceeds plus my bonus from my job to pay off my loans. Hence, my time horizon was relatively short around 1 year to 2 year horizon. That resulted in me doing more buying and selling of shares to realise the capital gain and use that to make regular partial redemption of capital for my mortgage.
3. Read and learn about the stock market
As I bought and sold shares, I also used the trading platform (in my case is poems) to learn more about the shares and the market characteristics. I also took time to go to the library on weekday nights or weekends to borrow books about investments and equities. You may want to consider investing your time in reading about investments and personal finance.
4. Hold for the long-term
Now that I've gotten past the phase of having a short-term view on the stock market, my investments have turned into buy-and-hold approach. I tend to buy blue-chips because such shares are of companies which have a large market capitalisation, are relatively liquid in terms of trading volume and very importantly, have sound profitable businesses and have a dividend policy that rewards shareholders for investing in them. Some shares I have include SPH, Singpost and OCBC bank.
5. Review your portfolio
Even with a buy-and-hold strategy, you should review your portfolio periodically. I make at least a weekly review of my shares against the market. I actually have a personal net worth excel worksheet that computes the lower of cost or market price for my share holdings. I will review the paper gain/loss each week and on a yearly trend to see how I am doing. In general, if I feel the market is going crazy, I may reduce my holdings but will stay invested in the market. Currently I am 56% invested in the market with the remainder of my investible savings in time-deposits, treasury bills and cash.
Our hard earned money is our responsibility and we should invest time in looking after our money. Nothing beats seeing the dividend credits into the bank account and to know that I am achieving a better return on my savings that time deposits and the CPF ordinary account rate.
You can do it too!
But wait, how many of us really understand how a stock market works and what is it that we are risking our monies when we venture into it?
I started out investing in the SGX around 2003, just when the SARS crisis hit in Singapore. I was fortunate in that I got into SGX when the stock market in Singapore was on a bullish trend up to today. So what are the 5 ways I learnt not to lose money in the stock market？ （In fact, I have made decent returns each year for the last 4 years plus from investing in blue-chips on the SGX.)
5 ways not to lose money on the stock market
- Decide how much you have to invest
- Determine what is your targetted investment returns and time horizon
- Read and learn about the stock market
- Hold for the long-term
- Review your portfolio
1. Decide how much you have to invest
This is possibly one of the most critical decisions you need to make as it is dependent on your income level, your expenses and the leftover for savings and investment. You may realise that you have not actually sat down to calculate how much investible savings you have. Some financial planners recommend that you should have at least 3-6 months in cash savings as a buffer before additional savings accumulated beyond this buffer can be used for investment.
If you have not decided how much investible savings you are willing to invest (and potentially lose - at least on paper), you should do it as the discipline and knowledge in knowing that you have holding power allows you to be more rational and less affected by the two emotions of fear and greed that strike all of us who invest in the stock market.
2. Determine what is your targetted returns and investment horizon
When I started out buying shares in the stock market, my targetted returns was to beat time deposits (fixed deposits) interest rates. Now that I have accumulated some experience in share investing, I raised my target to double that of time-deposits. Now time deposits yield about 2% plus for tenures of 3-6 months, hence my returns annually should be 4% plus. In addition, you need to know how long you want to keep your money. My strategy for the last 4 years had been to invest my savings into the market with an eye at selling and using the proceeds plus my bonus from my job to pay off my loans. Hence, my time horizon was relatively short around 1 year to 2 year horizon. That resulted in me doing more buying and selling of shares to realise the capital gain and use that to make regular partial redemption of capital for my mortgage.
3. Read and learn about the stock market
As I bought and sold shares, I also used the trading platform (in my case is poems) to learn more about the shares and the market characteristics. I also took time to go to the library on weekday nights or weekends to borrow books about investments and equities. You may want to consider investing your time in reading about investments and personal finance.
4. Hold for the long-term
Now that I've gotten past the phase of having a short-term view on the stock market, my investments have turned into buy-and-hold approach. I tend to buy blue-chips because such shares are of companies which have a large market capitalisation, are relatively liquid in terms of trading volume and very importantly, have sound profitable businesses and have a dividend policy that rewards shareholders for investing in them. Some shares I have include SPH, Singpost and OCBC bank.
5. Review your portfolio
Even with a buy-and-hold strategy, you should review your portfolio periodically. I make at least a weekly review of my shares against the market. I actually have a personal net worth excel worksheet that computes the lower of cost or market price for my share holdings. I will review the paper gain/loss each week and on a yearly trend to see how I am doing. In general, if I feel the market is going crazy, I may reduce my holdings but will stay invested in the market. Currently I am 56% invested in the market with the remainder of my investible savings in time-deposits, treasury bills and cash.
Our hard earned money is our responsibility and we should invest time in looking after our money. Nothing beats seeing the dividend credits into the bank account and to know that I am achieving a better return on my savings that time deposits and the CPF ordinary account rate.
You can do it too!
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