Investing your first $10,000? Avoid these expensive mistakes

Investment mistakes, Investment Strategy, Retirement Planning, Investment2022-07-05

“How can I invest my first $10,000?”

This is a question we often get asked.

If you are reading this, chances are, you are thinking of taking the first step to start investing.

You understand the importance of getting started, of investing to grow multiple income streams.

But with so many options out there, it can be pretty overwhelming.

Investing can be scary when you are new, and the thought of losing your hard-earned money is gut-wrenching.

Although it’s tough NOT to make mistakes, from our years of experience, we can at the very least share with you the key expensive mistakes you can avoid.

So when you start, you can at least be grounded on the fundamentals of investing.

Here, we share some major red flags you should watch out for when you are kickstarting your investment journey – so you won’t burn your first $10,000.

Let’s go.

At The Money Folks, we help our clients invest and build multiple income streams that potentially enable them to retire with more than $1 million. Reach out to us for a financial assessment call (by application approval only).

Disclaimer: This post represents our personal views and opinions and is neither associated with any organisation nor reflect the position of any organisation. This content is also only for informative purposes and should not be construed as financial advice. Past performance does not necessarily equate to future performance. Please seek advice from a Financial Adviser Representative before making any investment decisions.

1. Investing without a clear goal is as good as not investing at all

Sometimes, you buy investment products from your financial planner acquaintance because you don’t have any ‘investment effort’ in place besides CPF.

As a responsible person, you might have purchased these products as you want to be insured as well as grow your wealth at the same time.

Or maybe they are an excellent salesperson and you were convinced you needed them at the time.

But, have you ever wondered how these products benefit you specifically?

Our intention to grow our wealth is at the right place but is it going in the right direction?

This situation is not exclusive to any financial products, it is applicable to any financial instrument for that matter.

Be it investing in stocks, bonds or funds.

What is your purpose for investing?

For your children’s education? To upgrade to a family condo?

Do you want that $10,000 to grow by 10%? 20%? In how many years’ time?

If you invest without any goals, your investments might be just an expense that you put aside monthly without actually ‘helping’ you financially.

While it is important to invest for retirement, it is equally important to invest for shorter-term goals as well, especially if you are the breadwinner of your family who needs to support your ageing parents too.

You need to have an idea of how much you need to have to meet all of your financial commitments in 5 years and even in 10 years’ time.*

*Assumptions made for graph below:

  • You own a 4-room HDB flat and a Toyota Vios
  • You are sending your child to a local university which costs $69,000 in total including hostel accommodation
  • Your parents require elderly care and long-term care
  • You need $2,000 a month for retirement over 20 years (adjusted for inflation)

For illustration purposes only. Investments may go up and down and there are risks involved. Please seek advice from a Financial Adviser Representative before making any investment decisions. All of the potential costs are estimates of our own research.

For example, by investing $20/day with consistent 10% p.a. returns, you can potentially get up to $1.36 million worth of funds over 30 years.

So you could meet any financial milestone in your life, be it for your own needs, children as well as parents’ expenses while growing your wealth concurrently!

✔️ How much will your child’s education fund potentially need?

✔️ Are you targeting an institution in the States or the United Kingdom?

✔️ And do you foresee that your parents may need extra medical attention down the years?

It can be quite difficult to meet these expenses if you only save $20/day without any compounding growth, you will potentially end up with $216,000 (and this is not inflation-adjusted!).

All these financial needs require careful planning of your money. If you invest without a specific goal, it can be pointless if you are not able to generate enough when you need it the most.

From here, you would be able to work backwards and determine how much exactly you need to gain in order to be financially sound in every life milestone or emergency.

With a clear goal in mind, your investments will not be just putting money on the side or taking on the wait-and-see approach if it grows enough.

You will grow your $10,000 with purpose.

And eventually, you will be able to potentially grow multiple income streams that can help you achieve your goals – be it to fund your children’s university education, your own retirement or more.

2. Investing 1 or 2 assets and praying it will work out is like sailing without a sail

If you are investing in just 1 or 2 stocks or a single fund, and just hoping things will work out, it’s like sailing a ship without a sail – you will be at the mercy of the stock market.

For example, if you are only investing in tech funds, the tech stock crash would most likely have badly affected your investment portfolio.

If this sounds like a scary idea to you (in fact, this would be pretty scary for most people), what you need is an investment strategy – and a solid one that can ground you and make your portfolio more resilient to market forces and changes.

What do we mean by investing strategically?

The first step is to have a clear goal for your investment.

After establishing your goals, the next step is to identify the type of asset classes and sectors you should invest in to potentially achieve your goals.

Consider diversifying your investments to spread out your risks.

Next, adjust your exposure to them accordingly.

You will need to strategise a proper asset allocation for your portfolio, adjusted according to your risk appetite and goals. If you do this well, you can realistically expect the long term investment performance to potentially match your goals.

Having an asset allocation is key so you are not at the mercy of the market.

If you are investing without a proper allocation, you might not get the returns you want nor be sufficiently protected by downside risks.

Here is an example of one of our client’s beginner portfolio for his first $10,000:

Just for context, we will briefly share the significance of every allocation:

  • 50% was allocated for his overall portfolio foundation — this could be general index funds like funds that track S&P 500. This is because he wanted his portfolio to capture the overall market returns.
  • 25% was allocated for the purpose of growth — this is a part of his portfolio where he wants to be exposed to growth stocks or industries. This is to capture potential returns in assets that could have the best potential returns (after taking into consideration the amount of risk he was willing to take). Funds in this category could be those focusing in the technology sector, for example.
  • 25% was allocated for the purpose of value — this could be Exchange Traded Funds (ETFs) or unit trusts of high yield dividend stocks or bonds, for example. He wanted a part of his portfolio to provide relatively steady returns.

Notice that every allocation has a purpose.

This would steer this investor’s investments in the direction he wants to go.

Do note that this allocation is exclusively based on this particular client’s desired returns and risk appetite. Every individual has different risk tolerance and investment objectives, so it is best to consult a professional to help you work this out.

An effective asset allocation requires knowledge and investment expertise to assess the behaviour of each asset in different economic climates.

If you are unsure of how to do so, it is recommended to work with an expert, such as a Financial Advisor Representative (FAR).

If you need help, reach out to us to get a personalised asset allocation that can help you grow multiple income streams.

3. Not perceiving risk well is like sky-diving without a parachute

Have you ever been sky-diving?

Would you skydive without a parachute?

We don’t skydive without our safety gears or a parachute and you shouldn’t too.

Let’s consider investing as skydiving.

No one in their right mind would want to dive without a parachute, right?

Similarly, in investing, you shouldn’t invest without understanding and managing the risks that come with it.

Many of our clients shared with us that when they started investing themselves, they invested without any strategy and planning on their end. This made them lose a lot of money.

So today, we don’t want you to have that kind of start to your first $10,000 investment journey.

Let’s take a deeper look at what we mean by risk.

Technically, risk can be measured using several metrics.

For example, the standard deviation is a common metric used to measure the volatility of an asset’s price. And the Sharpe ratio is an asset’s reward-to-risk ratio, i.e. how much returns you get compared to its volatility.

But can this be the only perspective to see risk from?

What about the depreciating value of our money due to inflation?

According to MAS in July 2022, the projected core inflation rate is about 3-4% this year, so if you are getting returns that are lesser than this, it means that your purchasing power will be reduced in future.

For illustration purposes only. Investments may go up and down and there are risks involved. Please seek advice from a Financial Adviser Representative before making any investment decisions. Please refer to the disclaimers at the end of the article.

Would having your purchasing power reduced over time be considered a risk? As this means that over time, you might not have enough for your needs.

In this case, not doing anything about it can actually be perceived as risky too.

This is why it is important to take action but do so with a comprehensive investment strategy that takes into account all of your needs.

So when the market dives, your portfolio is already equipped with a parachute for a safe landing.

Here at the Money Folks, we help our clients invest using a weather-resilient investment framework, that can potentially enable their investments to ride out any tough times.

4. Numbers can lie. Don’t trust them blindly

Have you ever been pitched to invest in a fund?

“This fund very good one... 18% p.a. even in pandemic! You only need to invest in this for retirement.”

“This fund is better... 25% returns average annual returns. If you don’t invest now, you are missing out!”

Wow. Doesn’t it sound very attractive?

But, do you know whether the returns are consistent?

Also, do you know over how many years the quoted “average” returns are measured?

For example, let’s say if you initially invested $20,000 and you gained 100% in the first year but you lost 50% in the next year, you will return back to your initial capital.

Your total return is actually 0% over the two years.

However, when one calculates the average returns, it would be done in this manner:

Simple Annual Average Return = Sum of annual returns/Number of years invested

This means that mathematically, using this formula, you are getting 25% annual returns on average over 2 years.

Is this really reflective of the real performance of the fund?

As Mark Twain once said, “Lies, Damned Lies, and Statistics”.

So how can you avoid being a statistic victim in investments?

There’s no perfect metric of returns. You have to know what the indicator tells you and what you can do with such information.

There are many metrics you can use to assess the performance of a fund, but here are some indicators that are typically present in a fund factsheet, for example:

For illustration purposes only. Investments may go up and down and there are risks involved. Please seek advice from a Financial Adviser Representative before making any investment decisions.

For illustration purposes only. Investments may go up and down and there are risks involved. Please seek advice from a Financial Adviser Representative before making any investment decisions.

As you can see, there are a lot of indicators for you to look at.

Do you look at 3-year or 10-year returns?

Does the total returns since inception matter?

The trick is to know what to look at.

It requires technical as well as fundamental knowledge and expertise to decipher the information at hand.

This can be too overwhelming for some people as it requires some financial analysis knowledge to do so.

If you are unsure of how to make sense of the numbers, it is best to leave the nitty-gritty of financial analysis to the experts.

We like to crunch numbers for our clients so they don’t have to.

And we will explain what all these mean to you, as well as the steps we would recommend you to take so you can achieve what you are looking for.

Kickstart your $10,000 investment journey now

So how can you invest your first $10,000?

Here are some examples of financial assets many Singaporeans may often start investing in:

  • Bonds
  • Exchange-Traded Funds
  • Unit trusts
  • Real Estate Investment Trust (REIT)

These financial assets have a relatively low barrier of entry.

If you are considering these options, try to diversify as effectively as you can. Geographically, as well as in different industries and sectors. Do your own research on the different asset classes and how different economic cycles affect them.

While at it, watch out for the red flags that we highlighted above.

In short, DO NOT:

  1. Invest blindly without a goal
  2. Invest without doing proper asset allocation
  3. Invest without understanding risks
  4. Blindly trust any asset’s performance metrics

Keep in mind that when you invest, it is not as straightforward as just parking your money in certain assets and forgetting all about it after.

It is important to monitor your portfolio so you are always on track to your goals.

What you decide to do with your first $10,000 will have a great impact on how your investment journey will develop in the future.

So it is best for you to get it right from the beginning so you are potentially on the right track to building your wealth successfully.

At the Money Folks, we are able to manage and grow your wealth for you, as well as warn you about other red flags that regular investors might overlook.

The majority of our team is recognised as the top 5% of financial advisor representatives worldwide, and our clients are on track to potentially achieve their retirement goals 10-15 years earlier than planned.

Preserve wealth in volatile market fr. $20/day

At The Money Folks, we help our clients invest and build multiple income streams - potentially enabling them to achieve early financial independence. This is done using our recession-resilient investment framework.

The information in this article is meant for general information purposes only and does not constitute financial advice. Please consult your Financial Adviser Representative before making any investment decisions. Investments have risks. Past performance is not necessarily indicative of the future or likely performance of an investment.

Further Reading

Financial advisors spill the beans: How you can find a trustworthy advisor

Does your financial advisor use cookie-cutter investment strategies? Do they have a recession resilient investment framework tailor-made for your specific goals? Here’s the top secrets to finding a good advisor, as shared by some of the top financial advisors themselves.

Financial advisors, Investment, Retirement Planning, Financial Planning

The dangers of doing dollar-cost averaging blindly

Dollar-cost averaging is a popular investment strategy, but do you know it can be costly if you are just doing so blindly without paying attention to investment fundamentals or market movements?

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Dangers of investing in REITs for passive retirement income in a volatile market

Should you invest in REITs for dividend income for retirement? What are the potential pitfalls you need to take note of?

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