Spot the common mistakes first-time investors make and the habit that prevents each one.
Wei Jie (an invented example, with example figures) bought his first ETF and made eleven trades over the next six months. If he had left his account alone after that first order, he would now have more money than he does.
After a bad week of five red days in a row, he sold his US fund. A friend recommended a technology fund that had just finished a very strong year, so he bought it. He sold it in its first dip. A few weeks later he bought back into the US fund at a higher price than he had sold it for. He paid a commission on each of those trades. Every move seemed reasonable to him at the time, and none of them looks foolish when you look at it alone, but together they cost him money.
First-time investors everywhere make the same handful of mistakes, and four of them are especially common:
checking prices too often chasing last year's winner stopping investing in a fall and restarting after it falling for guaranteed returns.
Wei Jie made the first two, and he also traded too much in general. Each of the four mistakes can be stopped with a simple habit.
An investing app lets you open your balance whenever you like: on the MRT, at lunch, before bed. Most of what you see from one day to the next is noise, which is price movement that means nothing in the long run. A broad fund can rise or drop by a percent or two in a single day, for reasons that nobody will remember a year from now.
Each time you look, you get another chance to react. A red figure makes you want to do something, and that something is usually a trade. The trade costs you a commission and a spread, and you decided to make it because of how you felt on one day.
Decide your checking schedule in advance. Once a month, on the day you invest, works well. Turn off price alerts on anything you hold for the long term, and keep on the trade notifications you set up in lesson 3.3. The two do different jobs. Trade notifications tell you about activity in your account and help protect your security. Price alerts tell you a price has moved, and they do nothing except tempt you into a trade.
Chasing last year's winner means buying whatever has gone up most recently. When a fund or a theme has a big year, it starts to appear in articles, group chats and ads, and it is normal to want some. A fund only reaches the top of last year's performance tables after its gains have been made, and those gains went to the people who already owned it. If you buy after a big run, you pay a higher price, often just as enthusiasm reaches its peak. Themes that are hot one year often turn up among the weakest the next.
When a new fund catches your eye, go back to the reason and the must-have list you wrote down in lesson 5.4, Shortlist three ETFs and choose one. If the fund fails the list, don't buy it, however well it did last year. If it passes, compare it with the fund you already hold on cost, size and listing only, and leave recent returns out of that comparison.
Of the four mistakes, this one is the easiest to confuse with being careful. When the market drops, people pause their monthly investing to "wait until things settle". They start again once a recovery is already under way and the headlines have calmed down.
Dollar-cost averaging means investing a fixed amount regularly, and pausing in a fall reverses its benefit. You skip the months when your fixed amount buys the most units and come back in the months when it buys the fewest, so you keep buying high and missing the low. Nadia (an invented example) appears in lesson 7.3, What a market fall looks like in your own account. She invested S$1,500 a quarter. After a fall, her S$1,500 bought 600 units instead of 400, so a pause would have given up 200 units.
Set your plan to run automatically wherever you can, and commit now to investing through falls. You'll write that rule down in lesson 7.5.
The fourth mistake can cost you far more than the other three. Once you start investing, scammers start to target you. They reach you through ads, through messages and through people who call themselves "mentors". They offer platforms with guaranteed returns, high monthly payouts, or the chance to copy a successful trader. Some use fake news articles or videos of well-known people.
In real investing, a guaranteed high return with no risk does not exist, so any offer that promises one is a warning sign on its own. Other warning signs are a platform that is not licensed by MAS, pressure to decide quickly, and a request to move your money onto an app you don't know.
Before you send money to any firm, look it up in the MAS Financial Institutions Directory and the MAS Investor Alert List. You ran the same check on your broker in lesson 1.3, Check a broker is licensed and what happens if it fails. Never move money because of a message you didn't ask for. The course Scam-proof your money covers these scams in more detail in lesson 4.1, Fake platforms show profits you can never withdraw, and lesson 4.3, Fake celebrity ads, insider groups and trading mentors.
Most people are not equally likely to make all four mistakes. Restless people tend to trade too much. Cautious people tend to freeze when the market falls. Trusting people are the ones who click on the wrong ad. Nadia knows she is careful to a fault, so the mistake she is most likely to make is the third one: stopping her investing as soon as things look frightening.
Be honest about which two you're most likely to make. For each, write down one habit that would stop it, specific enough that you'd know whether you'd kept it.
Write down the two mistakes you are most likely to make, and one habit that would stop each.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).