If you’ve realized you need to start investing, congratulations! Thinking about investing means that you’re already know how important it is to your future, whether it’s to grow your wealth, reach financial freedom or even just to avoid inflation.
On the most basic level, the first question you need to ask yourself is, in an ideal world:
1) Do you want to do your investing yourself?
You’ll need to learn about the basics of investing, concepts like time horizon, diversification, asset classes and more. It’s not rocket science, but it’s not for everyone either!
2) Do you want someone else to manage your investments for you?
In this case, you’re entrusting someone else to do all the research and ensure you have a portfolio that is right for you. In Hong Kong, the easiest (and cheapest) way to do this would be using a robo-advisor.
Which one is better?
Ultimately, this is a question for you to answer yourself. Are you committed to learning more about investing responsibly? Do you find it interesting? Would you be able to stay rational in an emotional market?
There’s pros and cons to each – but ultimately the best way is whichever will get you started sooner and whichever will keep you investing consistently.
I really want to do it myself
At Planto, we believe in responsible investing – you don’t need to be a genius stock-picker. As long as you are committed to investing for the long-term in a disciplined way, you’ll be fine!
The three most important things for being a responsible investor are:
1) Start early
2) Understand some basic concepts
3) Be disciplined in investing each month
1. Start early
Starting early means you can take advantage of compound interest to grow your wealth exponentially faster. Here’s a visualization:
As you can see, compound interest accelerates your wealth growth over time, which means the sooner you start, the more time your wealth has to grow.
2. Basic Concepts
There’s two major concepts you need to understand to be a responsible investor:
A) Time Horizon
This means your investing strategy should depend on your goals. If your goals are in the short term, you should not be buying risky stocks because if the market goes down (even temporarily), your goal may be delayed!
On the other hand, if your goal is far away (like financial freedom), you want to invest more aggressively for higher returns to be able to reach it!
The easiest way to adjust your risk is to build a portfolio of different asset classes: low risk investments like time deposits, money market funds and bonds will lower your risk, while stocks will increase your risk.
This means don’t put all your eggs in one basket. There’s two things to consider: geography and sector.
Geography: If most of your investments are in a market like China, Hong Kong or United States – a single event like the trade war, or Brexit could cause your investments to suffer. Having your investments spread across geographies reduces that risk.
Sector: If most of your investments are in technology, then a single bad event like the dot com bubble could erase your returns. Having investments across all sectors – utilities, energy, financial services, technology, etc., reduces that risk.
The easiest way to diversify is to build a portfolio using ETFs – this reduces on your transactions cost (since one ETF can cover multiple geographies, sectors, or even asset classes!) and makes it easier to manage your investments.
The surest way to build your wealth is to invest every single month, taking advantage of dollar cost averaging and compound interest. Set a budget for yourself (it doesn’t have to be super strict) to ensure you save consistently, and consider a monthly investment plan (or use a robo-advisor) to automatically transfer a fixed amount of money each month if that’s what it takes!
The very first thing you should do is open your investment account (whether with a robo-advisor or with an investment broker) – it’s easy to fall into the trap of “I don’t know what to buy yet – I’ll open an account later”. In reality, what you’ll find is that once you have an account open, you’ll find the motivation to start doing your own research and grow your wealth!
If you’re too scared to take the leap, there’s also low risk investments you can start with just to get the hang of things!Next steps
Investment involves risks. This information is intended to be educational and is not tailored to the investment needs of any specific investor. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment or action. Past performance is no guarantee of future results. The value of investments and the income from them can go down as well as up, so you may not get back what you invest.