The fact that financial literacy here is increasing doesn't mean that many people know. It is more perplexing to know that most people think that they know but they don't. With new concepts of investing that comes into play such as Psychology, Behavioral, Financial Technology and many more, can we really keep up? For a start, we have to begin somewhere and before plunging in to make that first trade (Everyone thinks that they are the next Warren Buffet) Take a deep breath and ask yourself what exactly are you. What type of investor are you? What is your profile? How much downside can you take when things happen?
We have seen quite a tremendous turn of events in 2015/2016. Brexit was an interesting one which majority certainly did not expect. Even the ruling party probably did not expect that to happen so while we think that things may not happen, the fact is unpredictable things do happen. How can we avoid those situations? By theory and plenty of them, we can but by practical means it is almost practically impossible. How can you tell if Super Group Limited was a target of acquisition? That sounds rather impossible though by valuations, Singapore companies are valued rather conservatively so some of our listed companies are truly good in value.
At least from my past experiences, I do understand that there are a few type of investors:
1. The passive/active fighters/dividend warriors, Income strategies
2. Buy and Hold until the values unlocks
3. Short term trading (Through brokerages and CFDs)
4. Contra trading (The aggressive investors)
5. Margin Trading (Leverage trading)
6. The discretionary investor
7. The hearsay investor/IPO investor
Which one are you? Or maybe none.
In my last post, I talked about insurance. It is a boring but necessary discussion but when it comes to investing, the interest levels doubles up and many would take a second look to find the holy grail. There isn't any holy grail anyone can bring to us, it is just many years of experience and knowledge. Sometimes things fall in place and sometimes it doesn't.
Even if you know what kind of investor are you do you put up your first bit of savings to buy that one stock that you so yearn to keep? In my view, certainly not and I would say the first step to investing is to really invest in yourself. That $500 you save every month through building your own cash reserves is something that can help you in the long run. In most articles, most experts recommend a steady cash reserves of 3-6 months but the reality of life is that, everyone's situation is different so there is a need to manage this portion accordingly. Is 3-6 months really enough, how I see it is probably more conservative and realistic at 9-12 months. That being said, doesn't mean that the reserves are to be used subsequently into making a car purchase or a luxury holiday. Like I always hear from someone i respect a lot - Make money first before thinking of spending it. Sounds like an easy statement but it is never easy to execute the plan.
If I had the opportunity to turn back time, I would have started making plans in my teens but unfortunately my procrastination and passiveness denied me of doing so. So what exactly is the purpose of building the cash reserves and i would list them down for the following:
1. Savings (This is by far the best way to invest in yourself to save for a rainy day)
2. Start Wealth Planner (This is the first step you take)
3. Loss of income/Loss of job (This would be the main concerns of many at the moment)
4. Sickness/Medical (Self and family members - You experience these when your folks or people you love fall sick)
5. Prepare for marriage
6. Prepare to buy a house
7. Preparation for a family
8. Retirement (It does seems like many around us are prepared or already have an inheritance for retirement but it is definitely not the case of many of us today)
By having cash reserves, it matters because it gives comfort that there is sufficient to tie over rough patches at least for the short term.
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