What should a new investor do?
So you might be interested in investing, dabbling a little bit with stocks and picking some unit trust.
Then one day (when you have more money in your bank)
you want to take investing seriously.
You see Tesla:
or you saw what happened with kodak.
The fomo is real, but you're not the person that makes silly moves so you calmed yourself down.
And now you got to decide do if you should start to buy funds or start your entire journey of picking stocks on your own.
That's why i'm here to compare them both across a few key aspects and then leave you with a few thoughts about a game plan on how you can use either of those two.
So let's start with a super simplified overview of stock picking strategies that are out there.
They broadly come in three big flavors and the first is:
Value investing is simply about picking stocks that you believe are underpriced by the market
The next is:
It's where you believe the company has strong prospects of growth and you're hoping that at some future point is going to grow so fast and so much that you're going to profit from it
The final popular investing strategy is:
Dividend investing is really all about picking stocks that pay dividends, money that the company gives out to you as a reward to its shareholders
The truth is there are way more nuances way more variations that you need to think about when it comes to funds.
Investquest has created a beautiful guide when it comes to ETFs and you can check it out here.
You can take a look at their Unit Trust selections here.
To start you got three different aspects to make your decision on creating a D.I.Y portfolio vs Funds.
What is your available cash at this point in time?
When you buy stocks in Singapore you have to buy them in lots.
A single lot in singapore is equal to 100 shares so if you buy a stock that you like you need to buy 100 of those shares ain a single purchase and that's going to affect your ability to diversify. With a small capital might be very difficult to diversify. On the other hand ETFs already are diversified because they tend to be a fund of many different stocks but it also allows you to make purchases into other asset classes.
How much time can you allocate to investments?
If you're new to stock picking here's the kind of effort that you would likely need to think about as you move forward it starts with choosing and then learning about a strategy that you're particularly interested in and that's really just the tip of the iceberg.
There's so many different ways that you can pull off the strategy once you've done that you've got to put together a holistic system on your own on.
When do you buy?
When do you sell?
How much do you buy?
With Funds however because there are already baskets of them your involvement tends to be a little bit lower.
You still need to however look a little bit into analyzing different aspects of the funds.
Their expense ratios.
The different type of holdings they have
The fund manager.
But upon selection the maintenance tends to be very low
How is your investing ability like?
So if you are more oriented towards passive investing you are basically trusting that the market over time is going to reward you but you're going to forego the rocket ship returns that a lot of people are really chasing for. This style of investing doesn't lean on any form of stock picking and even if you are choosing specific strategies instead of just broad market indexes. Remember that funds are baskets of stocks and in the basket should one egg fall out and it breaks it's okay because you've got the rest of the eggs in the basket.
For stock pickers you really don't have to look far to see many people promise you that they are going to help you beat the markets. Unfortunately things are honestly stacked against retail investors (that is us btw) and a lot of them are actually psychological in nature.
You can refer to my previous opinion to learn more about psychlogical bias
So what is the game plan here?
The best part is that there is no black and white situation. You can start by picking funds that you like and then gradually add on different kind of asset classes and once you've got that core portfolio ready you can begin to add on individual stocks to skew your portfolio (Satelite investing, sounds familiar?)
You can also start by building your own stock portfolio anyway and then you can use funds as a form of diversification.
Helping S'poreans Fresh Graduates navigate #adulting and prepare them for their first steps towards Financial Independence.