5 Pieces of Advice on Investing in Stocks

The majority of the adult population in Singapore know better than to keep their money in the bank. Early this year, a survey by Milieu Insight and Finder found that 52% of the country’s population invest in stocks.

As such, we won’t include any justifications why you need to invest in stocks as we believe you know them already anyway.

You might be here because of another thing – the pieces of advice for your stock investing journey.

We know investing in stocks can be quite challenging for many and if getting tips will make you more confident about it, then we’re happy to provide you with those.

Here are the five best pieces of advice on investing in stocks we hope would help you out.

1. Don’t invest all your money

One of the most important (yet the most forgotten) steps in investing is not setting aside funds for emergencies.

As much as possible, we want to get away from unfortunate situations, but we have to understand that emergencies do happen. It could be a loss of employment, bankruptcy, an accident, or a family health emergency. It’s always good to be prepared for the rainy days.

Hence, even if you have $30,000 in savings, don’t invest all of it. The convention is to put aside an amount equivalent to three to six months of your expenses.

Likewise, remember to secure insurance, especially for hospitalisation, critical illness, and accident. You can never go wrong with getting all your bases covered.

Once you have an emergency fund and insurance settled, then you can decide how much money you want to invest.

2. Set aside monthly savings for investing

Every month, you can allocate a certain percentage of your income, i.e., your salary, to invest in stocks.

If you’re familiar with the rule of 50/30/20, which the majority of Singaporeans follow, then you can stick to it, too. The 50/30/30 rule is about setting aside 50% of your income on your needs, 30% on wants, and 20% on savings, where investments are included.

3. Diversify your investment portfolio

Every other investment expert would tell you this: diversify your portfolio. And this tip is overused for a good reason. Diversification is the key to reducing risks.

As you are well aware, stock investing is not for those with low risk tolerance. Investing in stocks can give you high returns but it also is a high-risk investment vehicle. 

By diversifying your portfolio, meaning not putting all your money into one stock (or not putting your eggs in one basket), you have a higher chance of making a profit despite the market volatility.

Of course, diversifying takes into consideration your capital. You can’t really diversify with a $1,000 capital. But there are other possibilities to have a diversified stock portfolio with limited capital, including exchange-traded funds.

It will all boil down, however, on what your investment objectives are.

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4. Guard your emotions

Most investors fail in the stock market because of their emotions. And emotions can be detrimental to investing success.

Why do we say so? The stock market is volatile – this is a fact. With slight movements in the market, some investors often panic and let their emotions get in the way.

At times, due to the fear that the price will soon go up or down, they immediately buy or sell without really thinking about the decision. There are also moments when they would give in to what the market sentiment is about and just jump on the bandwagon, thinking that following the majority must be the right move. Or they would follow what their friends or investment experts are doing because of greed and envy.

These three emotions – greed, fear, and envy – are the ultimate nemeses of a successful investor. Remember that stock investing is not only a game of share prices. It is also a game of emotions. The tighter grasp you have on your emotions, the more logical your investment decisions will be.

5. Remember that you are investing in companies

One final piece of advice on investing in stocks is this: Remember that stocks are companies or businesses. They are not just ticker symbols that compete in a popularity contest.

Behind every listed stock is a company. When you invest in a stock, you’re investing in that business. Hence, it will greatly help if you invest in stocks that are within your circle of competence or those stocks you’re personally familiar with.

As you know and understand, and maybe you are also a customer, of the business, you’ll get a better understanding of its business model. Thus, you’ll know if the company has a strong economic moat, good performance, and a positive growth outlook.

Compare it with investing in a stock that you don’t even understand. It’ll be like playing darts with a blindfold. Hence, in investing in stocks, don’t forget to inspect the company underlying that stock.

Should you wish to get more tips on stock investing, feel free to come to our free investing masterclass.