1) Invest but only when a plan has been done or research has been made
2) Invest but with money that is not needed
When you invest with amounts you won’t need, it is easier to be more patient for results. That has been my personal experience. Investments using CPFOA or SRS accounts do not affect your cashflow and can be invested. Do check article “Why you should invest your CPFOA”. Monthly budgets you have set aside for your retirement or saving or for children’s education are also great to invest with.
Quote from book “How to invest without losing sleep”: You will be more inclined to watch the stock prices with a fear of loss. This will put you in such an emotional roller coaster that you may become a slave to the market news and prices. Such behaviour causes investors to act irrationally.
3) Invest but take PARTIAL PROFITS later when there is a chance
Yes, I know that most recommend a “Buy and hold” strategy. Even Warren Buffett advocates it. I personally practice taking partial profits from portfolios and I believe it has actually helped me hold on to my investments better.
A few months back, I bought some Keppel Corp shares at an average of $6.83/share. When prices recovered to $7.23/share, I actually sold some away and kept only a smaller remaining invested amount. The profits made gave me a buffer against future paper losses. Alas, Keppel Corp has fallen to $5 today. By taking partial profits previously, I reduced my total invested amount and this has helped me prepare better if prices continue to tumble. However, avoid excessive buying and selling of shares as it can incur unnecessary trading costs and can be time-consuming.
In this CNN report, Warren Buffett said personally that he lost $2B on his IBM investment. Today, that paper loss has probably exacerbated. Everybody sees paper losses at some point, it’s just how you prepared for it.
Image credits: http://www.newindianexpress.com/business/news/Shanghai-Index-Dives-About-7-Percent-Other-Markets-Lower/2016/01/04/article3211103.ece
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Josh Tan is a member of the theastuteparent program. Read more about the program here