As the 3rd quarter of 2021 has come to an end, I wish to use this opportunity to re-visit my investment fundamentals.
No. 1: Cash is King
No. 2: Debt is bad
No. 3: A clear understanding of Time Horizon is key
My time horizon dictates how much risk can prudently be taken within my portfolio. It also keeps rough market conditions in perspective. It’s irresponsible to invest without having a clear understanding of when I need to use the money.
No. 4: Dollar-cost averaging keeps my emotions in check
DCA is the process of routinely adding money to investments at regular intervals. The benefit of setting up automated, routine contributions to my investment accounts is that it helps eliminate emotions from my process. It eliminates the desire to time the market, and it also increases my ability to build wealth over time.
No. 5: Re-balancing allows me to make money without much effort
The act of re-balancing is when I try to adjust the weightings of my portfolio as investment values go up and down to maintain their original asset allocation based on risk tolerance. Re-balancing allows me to sell the positions that went up in value, while simultaneously adding to the positions that went down.
No. 6: Diversification is the only free lunch in investing
There is a tendency for me to find, and pile into, “the hot investment”. This is great while things are going well, but all companies, sectors and industries go through cycles.
The best way to protect my portfolio from this risk of over-concentration in one market segment is to have a policy of diversifying across many asset classes.
No. 7: Conservative bonds
When the market is soaring, many investors won’t even look at high-quality fixed income. They serve as a cushion that allows investors to withdraw funds from assets that didn’t plummet in value during a market correction. Lastly, there are rebalancing opportunities when stocks fall in price and the highest-rated bonds appreciate. I wish to add conservative bonds in Q4 as a core element of my investment strategy.
No. 8: High returns = a high level of risk
When the economic conditions turn, I soon realize that high expected returns could mean a higher level of risk. The bottom line is if I want to potentially achieve high returns, I need to be willing to take a high level of risk. It’s important for me to go into every opportunity with both my eyes wide open.
No. 9: Boring over exciting could be the right approach
I often confuse an exciting idea with a good investment opportunity. Excitement may be generated from the latest fad or an exclusive deal. These “opportunities” are, more often than not, being sold on the hype and not on their fundamentals.
If I want to avoid being lured into one of these situations, then I need to pursue an approach of sticking with plain vanilla - boring investments. This may be a combination of blue-chip stocks, index funds or high-grade bonds.
No. 10: Once I win the game, stop playing
The stock market can be addictive, especially if one have accumulated a substantial level of wealth. It’s important to understand that the main purpose of investing is for one to be able to achieve our financial goals. Once I reach that magic number, there is no reason to continue to put that money at risk.
The silver lining of a severe market downturn is that it causes me to reflect on the decisions I’ve made during the good times. However, if I stay true to the principles, it should increase my chances of success in the long run.
Last but not least: Never Stop Learning
I am currently studying and reading up on some new courses at @moomoo Courses
Good luck to all. Let’s hope for a better Q4!
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