Things to consider when investing

Investing

Last week, I shared some conversation tips with my readers. This week, I would like to share some investment tips. Originally, I wasn’t planning to blog about this today. However, the recent stock market turmoil has pushed me to do so.

The issue with the stock market is that people are too greedy and self absorbed. They think they can time the market. They believe they can make quick money.They know risk is involved, but it doesn’t occur to them that they could lose everything.

In my opinion, the stock market will go up in the long run. There will always be ups and downs, but generally, if you are investing for long term, you’ll be fine. HOWEVER, if you’re looking to make a lot of money in a short amount of time, it is very VERY risky.

In order to “win”, one has to buy low and sell high. However, most people does the exact opposite. When the stocks are low, most people are afraid it will go lower; as a result, they’re trying to get rid of everything and/or refrain from buying. Yet, when the stocks goes up, people are reluctant to sell and instead, buys, because they think it will keep going higher!

This will eventually lead to disaster.

The moment something bad happens, people will panic.

They will sell, sell, sell, sell, SELL.

Calm down. The storm will pass. If you’re going to freak out and sell everything, you will lose even more.

Stop trying to make fast money with minimum work. Nothing quick and easy lasts. You may get lucky once or twice, but in the long run, you could lose everything.

Be the tortoise. Slow and steady wins the race.

NOTE: If you are very knowledgeable about the stocks you have invested in, you may be able to “win”. However, it has been known that passive management actually does better in the long run compared to active management. I don’t want to go into too much details because it’s a bit tedious for me. Feel free to google and find out more though.

Some other things you should consider when investing are:

Human capital

How old are you? Human capital is highest when we are young, as our time remaining in the labour force is long. If you are staying in the workforce for a long period of time, you can afford to take more risks because you may be able to quickly earn back your losses. However, if you are closer to retirement age, your human capital is very limited. A loss will hit you a lot harder.

Volatility of your income

What type of labour income do you have? Do you have a stable job, or are your paychecks unknown each month? If your income is steady, you can afford to take more risks than someone with an unsteady income.

Significance of human capital as a % of total assets

If 100% of your total assets is based on your human capital, it means you’re doomed without your job.

Don’t take risks if you cannot afford to lose.

Avoid having too much eggs in one basket 

Straight forward. Don’t put all your eggs in one basket. If you drop the basket, all your eggs will crack. Diversify!!! Do not only invest in one thing!!!!!

Need for liquidity

If you are investing in something for a long term, you probably will not (should not) be touching the money for awhile. Therefore, make sure you do not invest everything you have. You should have at least 3 to 6 months of savings (cash) available in case of an emergency.

Remember, human capital can be lost due to disability or mortality. You should always secure yourself by purchasing insurance.

One gets rich by taking risks (or inheriting assets). One stays rich by minimizing risks, diversifying, and not spending too much.

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About gchan7127

I just want to share all my knowledge, ideas, and experiences with the world. It makes me happy to know that I can inspire others.
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18 Responses to Things to consider when investing

  1. stenoodie says:

    Wow! I am so impressed with this post, Grace! I am so happy that I have such a smart investor friend like you. 🙂 All the tips and advice are so wise and professional! The only thing I have to disagree with is in the last line when you mention that to stay rich, you refrain from spending too much. In the business that I work in now, if you spend more, you actually get more money. 😉 🙂

    • gchan7127 says:

      Thanks, Karen!! Haha, I know what you mean about spending more to earn more. 😛 For the spending part, I mean to say people should spend within their means. Some spends more than they have and end up in a lot of trouble.

      This is the first time I’ve written something that’s more finance based. Hehe. Thanks for your positive comment, Karen! ❤

      • stenoodie says:

        Ahh, I see. Hehe 🙂 Keep up the good work! This is good for people our age to read because not many (like me) know much about finances.

  2. stenoodie says:

    By the way, this is such a cool new blog layout. But I think I liked the older one better. What made you decide to change it? 🙂

    • gchan7127 says:

      I liked the older layout more as well, but I want to try out a different theme to see if people will be more inclined to click my older posts! Haha, I’m scrolling through the themes right now to see if I can pick a nicer one. 😉

  3. Alex Wong says:

    Hey great post Grace! I really like the part about “Stop trying to make fast money with minimum work.” This pretty much applies to everything in life.

    I think the most important thing we can do with investing is educating ourselves. The more knowledge you have, the better decisions you can make. Don’t expect others, such as “financial advisers” to take care of your money and help you earn big returns because their main priority is making money for themselves and their company.

    And agreed, studies show that passive management actually outperforms active management in the majority of cases. I’d say a good place to start is researching and investing in a couple of good index funds or ETFs, which have much lower fees.

    Anyways, keep up the awesome work!

    • gchan7127 says:

      Thanks for reading and commenting, Alex!!! Hahaha. Yeah, most of us wants shortcuts and instant success, rather than working hard for something.

      LOL I am a financial advisor!! (just currently not actively working yet) 😛 I think it depends on the person. But I guess most of them might not have your best interest at heart.

      I, however, would only recommend a product if I think it is beneficial for my client. 🙂

      • Alex Wong says:

        Lol you must be one of the good ones then! I do think financial advisers can be beneficial for some individuals though, especially if you have no idea what you’re doing – or just don’t want to learn – and they are knowledgeable and have your best interests. It just might take some time to find the right one for your situation who can help you reach your financial goals.

  4. cicorm says:

    “One stays rich by minimizing risks, diversifying, and not spending too much.” Very true. My two cents is starting early and research on companies/industries/asset class, understanding the economy and industry is important too. Happy investing! 🙂

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  6. ambi says:

    Thanks for sharing!

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  8. Ta says:

    I don’t know about the stock market. Thinking about participating makes me anxious. I hate losing. Let me write it again, I hate losing. Especially when it deals with money. Is there any good website you recommend to read regarding the stock market and/ or ETF?

    I bank with Bank of America and they advertise so much about their Merrill Edge investment account saying lines like “Take advantage of streamlined investing,” “Get up to $600 when you invest in a new Merrill Edge® account.” I usually go “what???” I am rather happy for something long term. I can’t say I am not jealous of those who risk it and make big bucks. I usually don’t take the risk or shortcut because I have never been lucky in my life. Things just never fall in my lap. I have to work hard for it. So exactly why I hate my siblings, like hate them (damn these I hate them, but I love them B.S). Mostly everything just fall into their laps because I already did the hard work. I am starting to think, life may be a little happy if I have a kind-handsome sugar daddy. But then we all know, sugar daddy in reality isn’t the same sugar daddy in the imagination. It is a much harder reality. So back to investment, I was thinking on the safe side of just opening up a CD account. But that would take a while to generate investment back. Overall, I am conflicted.

    • gchan7127 says:

      Hello!! I don’t buy stocks myself as they are too risky. Instead I invest in funds. Perhaps you can go to the bank and ask what type of funds they offer?! In the long run, you will be making money. However, it will go up and down. You should ask a financial advisor to fill out a questionnaire to determine your risk tolerance, time horizon and etc.

      Personally, I go on fortune.com when I want to read about business related stuff. Check it out!!

      If you plan to invest in funds, please give it at least 3-5 years. If you need the money within a year, it is quite risky and you might end up losing money if the market is doing poorly. Ask your bank to see what they can offer you! 💓

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