Personal Finance Series with DrWealth

Investments for beginners: Simple tips for first-time investors

In the first of GoBear's Lunchtime Personal Finance Series, we welcomed Alvin Chow, CEO of DrWealth.com, to share with us how to start investing.

Many attendees took time off their lunch schedules, looking to take away valuable investing knowledge from Dr Wealth himself. Despite some growling stomachs, all of us walked away with renewed confidence in how we can let our money work for us so that we'll not go hungry in ten year's time.

If you've missed our session, here are some tips that Alvin has shared with us.

Alvin Chow, CEO of DrWealth

Stocks and ETFS vs Unit Trusts vs Robo-advisors

Of the three types of assets, stocks and exchange-traded funds are the cheapest for investors to get invested into. However, it requires investors to put in more effort to research the companies and monitor the performance of the stocks.

On another hand, you may want to invest in unit trusts and put your money in the hands of professional fund managers, but it'll cost more for investors in terms of the payable fees.

Then, there is also the option of robo-advisors, which are an increasingly popular investment tool because your portfolio will be allocated based on your investor profile and the auto-rebalancing will be done for you.

Tips for beginner investors

One of the highlights of the session were the simple tips that anyone who's new to investing can quickly understand and make use of.

To invest a lump sum or to dollar-cost average?

You might have heard of a common investing strategy – dollar-cost averaging – by spreading out your purchases across several time periods, you minimise the chance of buying into an asset at a price that's too high, only to see prices drop sometime later. The idea is to average out your buying price.

However, dollar-cost averaging may not always be the most effective strategy. Because when markets are on a constant uptrend, the average price that you buy at will turn out to be more expensive than if you had bought a lump sum at the start.

So if you already have a sum of capital that you plan to invest, putting in a lump sum may actually be a better strategy.

Simplify your portfolio

With so many different assets in the market, one of the principles is to keep a simple portfolio. For example, you can have a portfolio that consists only of bonds and ETFs, and you hold it in a ratio that's comfortable to your risk appetite.

While stocks can potentially generate more percentage returns than bonds or fixed deposits, the same is true about the potential losses. You stand to lose more if you're investing in stocks. So you have to consider what proportion of your portfolio you want to dedicate to a more volatile asset.

As Alvin puts it, "Don't ask how much you stand to gain. Ask yourself how much you're willing to lose first."

Rebalancing strategy

Alvin recommends for all investors to rebalance their portfolios once a year.

Assuming that you have a 50:50 portfolio consisting of stocks and bonds, after a year, this proportion might change to 60:40 for example. This could mean that the stocks have appreciated more than bonds, or that bonds have lost their value compared to stocks. 

Either way, you should rebalance your portfolio back into the 50:50 ratio by selling stocks and buying bonds. The idea is to sell high when an asset has appreciated, and buy low when an asset becomes cheaper. This simple strategy ensures that you "buy low, sell high".

Event summary

On top of these tips, we also learnt briefly about several investing methods, which includes value investing, growth investing, and dividend investing. Of these, Alvin even shared his personal investing preference and his thoughts regarding one of the latest retail bonds. 

All in all, everyone of different investing experience had a fruitful session, especially when Alvin enthusiastically replied to any questions that the audience had. 

If you're interested in our upcoming Lunchtime Personal Finance Series, where various speakers will be sharing investing tips and strategies, be sure to stay tuned to our Facebook page to find out more about our next event.

 

Dr Wealth aims to provide trusted financial education to individuals. Through events like these, investors will learn about different investing strategies and tactics that can help them to gain financial independence over time.

 

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The bare essentials of robo-advisors

How to create a healthy cash portfolio