Speaking to clients regularly on their investments, one common question I am asked is "should I invest in stocks?". The simple answer to this is "it depends". In this brief article, I hope to outline a few questions you can ask yourself to see if stocks are the right investment vehicle for you.
Most people who turn to stocks are generally intrigued by the potential returns and maybe some times envious of friends who seem to earn insane returns from the stock markets. Yes, it's true. It's possible to earn higher potential returns from stock picking. The opposite applies. You can similarly lose a large part of your capital by picking the wrong stocks.
Here are 3 criteria I generally lay out to see if stock picking is for you.
1. Do you have an interest in stock analysis?
Stock picking generally involves in depth study of the financials of the company to determine if a particular stock is worth buying. Most people who do well in stocks enjoy going through financial reports to find good buys in the stock market. If finance is not your thing, chances are you are better off staying away from individual stock picking.
2. Do you have the time?
Many people I know are often busy enough with their daily work and family lives to want to spend time going through financial reports. If you rather spend your free time doing other activities than looking at financial reports, maybe stock picking is not for you.
3. Do you feel excited to buy into a stock when the stock market drops?
Emotions play a big part in successful stock investing. People who do well in stocks are generally able to master their emotions instead of being driven by market movements. Very often, successful stock investing involves counter intuitive actions and not everyone is able to make rational decisions in the face of market volatility.
If your answer to the 3 questions above is "no", there is a good likelihood you are better off staying away from individual stock picking. Fortunately, there are many other financial instruments allowing you to earn decent returns without doing direct stock picking. Some of these include passively managed funds (e.g. Exchange Traded Funds), actively managed investment funds (e.g. Unit Trusts), instruments with lower risk and market volatility (e.g. endowments, singapore savings bonds, fixed deposits). Which instrument is suitable often depends on your investment objective, time horizon, personal preference, and individual risk appetite. If you like to have a chat to explore possible instruments suitable for you, do get in touch.