Taking the first step!

Just remember CARROT! In my previous post, I briefly mentioned CARROT as the first few questions to ponder about when starting an investing journey. In this article, I will elaborate a little more on the specifics of CARROT.

C for Capital

The mother of all questions! "How much do I need to start investing?"

Honestly, there is no answer to this question because it differs from person to person. I recently saw an ad on Facebook which allows one to invest with as little as $1!!! Sounds to good to be true... just imagine this, with your $1 investment that you have started today, you happened to buy into a stock which gives you a 100% return tomorrow and your account is now $2. YES! $2!!! but is that enough? 

So how much do you really need? This is really a difficult question. To determine how much you need to start investing, you need to first answer these few questions:

1) Is this amount of money part of your "emergency fund"?

2) Will you go "broke" if you lose all of this money?

3) From where are you getting this money? Your savings? Your salary? Your work bonus?

4) How long does it take for you to accumulate this amount?

5) If not for investing, how do you intend to use this money in future?

As you continue to read this article, you will notice that this question is intertwined with the later portion.

A for Assets

So... how much do I need to start investing?

This is where capital comes into play... An APPLE share (ticker symbol: APPL) costs under USD180. So if you have the intention to buy an APPLE share, you will need USD180 and if you want to own "Penny Stocks" they cost much cheaper, pennies? So really, the money you need is dependent on what you are buying. Instead of buying a durian fruit, you might just buy some oranges which are definitely cheaper. But what if there are many different types of oranges and all selling at different costs? Well, if that happens (similar to different company stocks in the same classification of industrial sector), you will need to choose the best oranges which you can afford. A little more into: "how much do you need" in the later half of this article.

In assets, you will need to know what you are investing into? Stocks (another word for equities), bonds, unit trusts, ETFs, Forex, commodities, derivatives, REITS and the list goes on and on.... without fully appreciating each asset class, it can be pretty daunting for a beginner to choose. To understand the different asset classes, one needs to know the pros and cons (mainly risks and rewards) of each asset. Using the internet or subscribing to educational YouTube channels will give you a good head start to surf for information. Watch and re-watch these videos multiple times until when you can grasp the common lingo from the different content. Take notes and spot the similarities or differences of these videos and find what is best for you.

When I first started almost 7 years ago, I bought into Singapore shares with the likes of local banks and telecommunication providers. I did this without researching into investing and bought these shares at a wrong time! Imagine buying shares when it was at all time high only to see it dropping thereafter? I bought these shares through a banking app and wanted to be on my way to investment without understanding macroeconomics. Thinking back, while I took a bold move (impulsive first step) to start my investing journey, I would relate it to swimming in the open sea without good knowledge of the water condition. I also find it stupid not to ask for a second opinion on what to invest and how to invest. I was too focused on wanting to kick start and take action that my aim was to jump right in without fully understanding what I was buying into. One of these huge mistakes include buying shares of Singapore Press Holdings (SPH) when news on paper print was heading for the sunset. I also bought into Singtel shares when their overseas investments was taking a big miss which resulted in the share print falling due to weak guidance in earnings. There is a saying, if you lose enough, you will start to learn. The purpose of this blog is to help anyone out there who might be new to investing not to fall for the same mistakes that I have made.

R for Risks

People who know me knows that I hate losing... which is why I never enjoy gambling. I do not enjoy relying on hopes and leaving it to chance while praying to win. When I compete, I compete to win. When I invest my time to get a job done, I do not shortcut the method even if it proves to be more productive and efficient. I am an old school guy, the type who religiously follow to rules "if it is not broken, do not fix it". I can eat the same old dish every week if it tastes good and not change the menu even if it means risking it to be tastier or awful. I do not like risk.

So when I finally decided to take this journey seriously in 2020 (7 years after my first investment and 4 years after learning about investment and trading) , this quote by Mark Zuckerberg from Facebook did not resonate very well: "The biggest risk is not taking one".

If there is anything that I have regretted looking back, I wish I could be more serious with my decision to invest. I should have learnt more, which could have started earlier and I would have been more careful. Shoulda, coulda, woulda... taken more risk.

Different asset class brings about different kinds of risks. Bonds and ETFs investing are generally on the safer side while equities in the case of stocks are subjected to more market volatility. Derivatives using leverage requires one to be prudent and take an active approach in management. Are you risk adverse or are you the "yolo" type? Can you see a drawdown of your investment to negative 70% and do not flinch your eyelid? Are you a passive investor who prefers a "buy and hold" method or an active investor who wants to get your hands on selling and buying whenever there is a retracement? Investing differs in personality, you need to discover yourself.

R for Returns

This is pretty straightforward but not so easy to understand... Ask yourself this question, how much are you willing to lose if your investment turns south? Take 10 seconds to think about this. We generally have an idea of how much we are willing to lose when we start investing. I have heard this many many times and my heart usually sank a little whenever I hear this: "Aiyah, it is okay, this $1000 is to invest for fun one, try out and see if investing is suitable for me, I can afford to lose all, no problem". Sounds too common? The aim of investing is to achieve capital gain by buying into an asset with potential growth. The "try, try" attitude should be the last thing to consider. Be serious when it comes to money. As a once famous Youtuber, Chicken Genius once said: "No one cares about your money more than you".

R for Objectives

Live life everyday as it is your last day. One of the main reasons why I started my journey in trading and investing is the ability to free up my time. Money cannot buy time. We are conditioned in a mental model to study hard, get good grade, find a good job and work for life. I don't know about you but that is not living a life. Imagine this, if we are all given 85 years to live, we have exactly 2680560000 seconds to be in this world and guess what? It is ticking away!!! If life is about study and work, there is really not much time for fun isn't it? Born into this world to work till you can no longer work and then wither away as you wait for your death? Sounds like a bad formula... Don't get me wrong, I am not asking you to go YOLO but set out some short term and long term objectives for yourself. What do you really want in life? If money was not a problem, what would you have done? In the end, we will all die, how you lead your way to death can be done differently. A common reply which I will always get when I try to "open the mind" of others about investing: "We will all die anyway and I cannot bring all the wealth that I have accumulated when I die, why do I need to invest?" Do you need to eat? since we will all die one day? do you need to sleep? since we will all die one day? Why are you still working since you will die anyway? Why study when you know you are going to die? Well... I guess that is just life...

T for Time

Exactly 2680560000 seconds, that is if you live till 85 years old. Take away 16 years of elementary studies and 10 years of idling away when you are retire, we have about 59 years to think about investing. All investments need time, the number one rule about investment is to start as early as possible. If investment was so simple, why are people not doing it? Because as humans, we always think we have time. Time can be your friend or it can be your enemy. Would you be better off investing into your first pay cheque till you aged or would it be better to invest when you can no longer work? I think the answer is obvious. Different assets classes provide different timeline for investment returns. Plan you 59 years well and you will be on your way to finance freedom earlier.

About The Contributor

Ben is not financially trained. He is not a certified financial planner and he does not sell any insurance or investment plans. He is not financially motivated by any entities to produce this blog. He just want his friends to know more about money management and not have anyone fall between the social cracks. Nope, he is not a millionaire though he aims to be financially free before 50 years old.