You have probably found yourself in a situation where you are faced with a barrage of information that beckons you to invest your money in one form or another.
Choosing an investment strategy is no easy feat. It requires a great deal of research and some may also believe that some luck is required.
Unfortunately, not everyone has the luxury of trying out different investment strategies. Looking for the perfect fit is akin to looking for that perfect pair of jeans.
Passive Investments – Yay or nay?
Passive investments, which is sometimes commonly portrayed as requiring lower costs while still involving minimal risks, seem like an attractive option to those who have little time to actively maintain and constantly monitor their portfolio.
However, passive investing is not just about placing money in index funds and then watching Netflix while the money rolls in. Active management of the portfolio would still be necessary, albeit at a reduced level compared to those who adopt a more active investment approach.
According to the latest survey conducted by Natixis Global Asset Management, a particularly worrying finding was revealed.
A high percentage of investors (82%) in Singapore are not aware of the fact that these passive products have little to no built-in risk management to protect against any market loss.
In addition, to further debunk the false sense of security associated with passive investment instruments such as index funds, it should be noted that these financial products are quite highly affected by short-term market changes that might be triggered by headline news.
Mistakes usually made by investors
It is human nature to find a scapegoat for when something does not turn out the way it was intended. In the case of bad investment returns, market volatility has always been the “fall guy”. However, this is not always the case and the survey seems to state that some of the biggest mistakes made by Singapore investors are:
Making emotional investment decisions. According to 2,550 advisers who were surveyed across 15 countries, making emotional decisions ranks as the number one investor mistake. If the investor does not have a financial plan or a goal set, the investor is more likely to focus on market noise and speculations. Thus, more likely to end up making emotional investment decisions as they are too focused on short-term performance.
Having unrealistic expectations. Investors expect a return that is almost double of what is deemed realistic by the advisers in light of the investors’ caution to take investment risks.
In cases where investors have a financial adviser to help manage their portfolio, failure to reign in these unrealistic expectations will probably end with the relationship turning sour.
As in any relationship, both parties have to communicate and listen to one another to ensure an optimal outcome for the portfolio.
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Moving towards the opposite end of the spectrum, experts believe that a whopping 75% to 80% of an investor’s pre-retirement income is a more accurate benchmark of the funds needed for the investor to live comfortably in retirement as opposed to the much lower 61% estimated by investors. This would mean that investors are unprepared for retirement and this is a cause for alarm.
Investors looking for financial security in retirement should instead devise a detailed financial plan and have attainable goals for their portfolio in order to be able to accommodate their retirement needs.
By carefully considering various asset classes and strategies in order to diversify their portfolio, investors may be able to minimise losses, if any, in such a volatile market. With maximum diversification of the portfolio, investors should be able to withstand short-term market changes and secure a comfortable future for themselves.
Looking to the future
A great number of financial advisers in Singapore believe that the future of investing will see the incorporation of Environmental, Social and Governance investing. Also known as ESG investing, it will be a standard practice in five years. In addition, automated advisory (or robo-advisory) is said to be the future of financial advising and this will lead to a change in the dynamics of investments in Singapore.
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