Long gestation: Time horizon for your EPF investment is very long. If you are 40 years old, you have 20 more years to hit your goals, and if you have other financial assets, that number could increase to 30 years.
ARE you making the most of your investments?
In today’s knowledge-sharing economy, many may know how to invest their disposable income, but few may really practise the right strategies to optimise their return on investment (ROI).
Why is this so? Because to invest well, we need to adopt certain mindsets that can seem counter-intuitive to human nature, at least at the beginning of your investing journey.
No matter how strong your financial knowledge, if you do not adopt and practice the right attitude in your investments, your efforts may end up being wasted. However, with enough practice, you’ll find yourself being more mindful with your investing efforts, which will then lead to a better financial outcome.
Here are the six money mindsets that you should abide by if you want to be successful in your investing efforts.
Begin with the end
in mindBefore you embark on any decisions, you need to know the “why” behind what you’re doing. The same applies when you’re investing your money.
Many Malaysians invest blindly to “grow their wealth”. Take the case of my recent client Chong.
Prior to seeing me, Chong did not have a clear picture of his investment goals.
“All this while, I’ve invested according to what was proposed by the salesperson. When they promised high returns, I thought those were the right investments for me,” he professed.
And therein lies the danger - without any idea of what ROI you should be targeting, you may be easily persuaded to part with precious money by the promises of high returns.
If this continues to be your modus operandi, then you would have set yourself up on the path of financial ruin and risk losing money.
Therefore, the first mindset you should inculcate is to always be clear of the big picture.
Set aside some time to project your financial needs for the future and list them down according to a timeline.
The key here, is to be as detailed as you can possibly be.
For example, if one of your financial goals is to fund your children’s tertiary education, ask yourself this: when will he/she start tertiary education?
Which country do you want them to study in? What is the average education fee there? Are living expenses high in the city? Have you taken into account currency fluctuations?
Once you’ve successfully mapped out these goal, you’ll then have a clearer idea of the kind of ROI you should be looking for in your investment.
If you start planning early, you may even be pleasantly surprise that the ROI required to support your lifestyle and goals isn’t too high and, in fact, is quite easily attainable.
Think of investment as a marathon, not a short sprint
Many major financial goals in life are long-term in nature. Take retirement planning, for example - the time horizon for your EPF investment is very long. If you are 40 years old, you have 20 more years to hit your goals, and if you have other financial assets, that number could increase to 30 years.
When you have decades on your side, you can afford to go for a higher level of risk. Even if you end up hitting a crisis, you’ll have enough time to wait for the market to recover. In fact, you should aim for an investment with a bit of crisis-potential.
During a crisis, your returns may drop significantly, but at the same time, opportunity arises in the form of cheap stocks. If an investment market continues to only go upwards, its price would only become more expensive and you’ll need more capital to invest in it.
The idea here is to think of your investment as a long-term effort. If you zoom in on the short-term fluctuations, you may be missing out on the big picture of how your money could grow, and end up going for a low-risk investment with low volatility and low returns.Don’t take anything on trust alone
When you invest, make sure you have adequate time to think your decisions through. Sales representatives will always try to present you a deal that seemingly requires your immediate buy-in.
Beware when it comes to this. Apart from the usual investment risks, find out what the risk to the safety to your money is. The salesperson may run off with your cash, the investment company could shut down or even go under.
I have had the unfortunate opportunity of witnessing every one of these scenarios play out among people I know, and sadly it usually happens to those who are rather trusting in nature. They usually take the salesperson’s words seriously, without running the necessary checks and getting advice from trustworthy sources.
Therefore, in your investment journey, make sure you arm yourself with the necessary knowledge and due diligence to avoid the risks. Without thinking about risks, you may end up losing your hard-earned money even if you have chosen the right investment opportunity
Never put all your eggs in one basketThis is an age-old concept in the world of investment. Everyone who actively invests knows they should diversify, but yet many don’t practise it.
Why is that so? It all boils down to human nature. Why change something that works?
If you’ve successfully made a good ROI on property, chances are you will continue stick to the same investment asset class as it is familiar, and has paid off before.
But every investment has its advantages and disadvantages. Property investment offers high returns, but is not easily liquefiable. Equities on the other hand are liquid, but very volatile.
A smart investor would diversify his money into various investment asset classes like properties, equities, bonds, money markets, precious metal and others. This way, they can make use of the advantages of one investment class to neutralise the disadvantages of another. For example, equities can neutralise the liquidity issue of property investments.
Placing all your eggs in one basket is never advisable, as you’ll risk losing everything if something happens to that one basket.
Keep your eyes open and your ears peeled
Many overlook the importance of regularly checking in with their investments. Whatever means of investment you have chosen, there are many ways that it can be affected over time.
Your property, for example, could have declined in value due to a market problem, or because the surrounding area has deteriorated. In the stock market, the management team of a company could have changed, which could then impact the share price negatively.
To ensure that your investment doesn’t get hit by these changes, you will need to stay sharp and regularly monitor your investments.
If an investment has been thoroughly underperforming, your natural reaction may be to get overwhelmed and panic. I’ve seen this in many of my clients.
One client even told me that he feels emotional and helpless whenever a stock market crisis hits.
However, with proper education, he has learned to bounce back fast and even grab onto new opportunities the crisis may present.
When you don’t actively manage your investments, you will fail to take timely corrective actions to optimise your investment. Not only will you risk not achieving your target ROI, there is a high chance you may lose part of the investment capital.Learn to leverage
There is no shortcut to successful investing - you need to be thorough and well-versed in knowledge of the different types of investments. This may be time-consuming, as it will require some serious learning and research.
If you do not come from a financial background or do not have the time to spend on research, investing can then prove to be overwhelming and tedious. But that doesn’t mean that you should give up and leave your money in the bank. There are many licensed financial advisers that make it their job to help clients grow their money. By leveraging these professionals, you’ll be able to save a lot of time and get the necessary insights into your investment.
One of my clients, a cardiologist, is very well-read and knowledgeable in investing. At home, he has a wall of books covering personal finance and investment. But despite his strong interest and learning ability, he still outsourced all the heavy financial lifting to a financial adviser. When I asked him why, he said it’s because by working with me, he can achieve great investment success with less effort and using only a little of his time.Without professional help, you don’t know what you don’t know. And when this is the case, not only are many great investing opportunities lost, you may easily fall victim into investment scams.
I hope these six mindsets serve you well in your efforts to grow your wealth. Happy investing!
Yap Ming Hui ( ymh@whitman.com.my ) is thrilled that his mission to empower every Malaysian with a roadmap to financial freedom has finally come to fruition with the release of a free DIY roadmap to financial freedom tool on the iWealth mobile app.
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