Welcome back to Part 2 of What is your investing personality? I had intended for the topic to be one post but realised the original one was already hitting 1,000 words and I haven’t even covered the section on the performance of the POSB Invest-Savers. Hence, the decision to split the post into two parts. I left off from the previous post on my family, wife and I setting up the POSB Invest-Savers in Jan 2014. The actions we took during the next three years up to this point in Jan 2017 were telling of our investing personalities. In particular, it was a great litmus test of our preferences for manual vs automated investing and individual stocks vs ETFs on hindsight.
Even in a group of six people made up of the closest people in the world to me, our investing personalities varied widely. If you look hard enough, I’m sure you can find aspects of your investing personality in us. It will continue to develop over time but there are certain core aspects that can be difficult to change. Understanding your investing personality is crucial in designing and growing your portfolio in a sustainable manner. You are more likely to have a stronger belief in the investing strategy you apply, greater flexibility in adapting the investing strategy to personal & market circumstances and less likely to panic when times are bad. Let’s run through what we did in the three years and have an honest perspective on the lessons we can draw.
My parents
Did almost nothing. I helped them set up their individual POSB Invest-Savers with a monthly investment amount of S$100 via ATMs because they had no internet banking accounts. My parents listened to my explanations to their questions below at the beginning:
- What is an ETF?
- Why invest in Nikko AM STI ETF (G3B on SGX)?
- What is dollar cost averaging?
- How does the POSB Invest-Saver work?
- Do they receive dividends?
- Why are the monthly investment amount and dividends to be received so low?
After that, they didn’t do any research on the explanations and they didn’t read up on the POSB Invest-Saver. My mum monitored the paper statements once in a while but I’m quite sure my dad forgot about the whole thing. But my parents have invested in penny stocks, FX and property throughout the entire time my dad was working before Jan 2014. Want to guess whether they made gains or losses? It’s an easy one. Big losses on penny stocks & FX and small losses in property.
If my parents have gone through the litmus test first, the results would have been clear. They should stay away from investing into most financial assets & property and would have been better off contributing cash to their CPF accounts. My dad would have had a higher CPF Life payout than what he is currently drawing and the same will apply for my mum, whom is about to start drawing her CPF Life payout soon. Those significant net losses in investments affected my family’s emotional and financial well-being negatively. Can you imagine? They could have not done any investing at all (saving themselves from all that heartache and pain), just contribute cash to their CPF accounts, earn interest on bank deposits and be better off now.
I know your argument is that it’s easy to look at life in the rearview mirror and see how you could have done things differently and better with your investments. But that argument is not a strong one if you had bothered with the litmus test. What would you have inferred from their questions and actions?
If you have no interest and are not willing to take the time to do basic financial research & analysis, you should avoid investing into most financial assets and property. You can consider government bonds, high interest and time deposit bank accounts. Not even corporate bonds would be suitable. There’s no need to even discuss your temperament and ability to manage your emotions during market gyrations. Don’t worry about beating inflation. Your biggest problem is that you are very likely to make significant losses if you invest, which erodes your wealth much more quickly than inflation.
My older sister
She did her own research on the POSB Invest-Saver. Went through the information on the website and product offering documents. Increased the monthly investment amount from S$100 to S$300 currently. Monitors the performance occasionally on internet banking and checks the dividends received. Even set up another automatic investment into the ABF Singapore Bond Index Fund (A35 on SGX) of S$100. But does not want to commit a large amount of cash into investments at any point in time. That was the extent of the interest my sister had and the effort & time she was willing to put into her small but growing portfolio.
What would have been your takeaway? Suitable for automated investing, potential for a bit of manual investing. Not suitable for individual stocks and should stick to a few ETFs only. Can consider property more for home ownership and less for investment. Yes, transaction costs for automated investing are higher than manual investing but that’s the price you pay for not wanting to do it yourself. Remember, you can’t have everything and there’s always a cost to anything. In the case of my sister, she can consider adding an ETF with global equity exposure. This is the part that may require manual investing but automated investing if possible would work better for her.
My younger brother
He never set up the POSB Invest-Saver. Did all the financial research & analysis on ETFs and figured he could achieve higher returns with individual local and overseas stocks. Did not like the idea of not being in control of the timing when it comes to automated investing. Continued to do his own research on individual local and overseas stocks. But guess what? He hasn’t made any significant stock investments in the three years.
Suitable for manual investing and individual stocks but a classic case of analysis paralysis. If you are willing to do all the hard work and spend the time & effort, don’t be afraid to invest in the markets. That’s how you learn. By making mistakes. You will make losses & gains, adapt your investing strategy, refine your technique and understand your temperament & emotional fluctuations in flat, bull and bear markets. But you can’t develop any of those skills without first trying.
My wife
Like my sister, my wife did her own research on the POSB Invest-Saver and went through the information on the website and product offering documents. She set up another automatic investment into the ABF Singapore Bond Index Fund (A35 on SGX) of S$100. She also increased the monthly investment amount of S$100 under the POSB Invest-Saver to S$400 before lowering it back to S$100 currently.
Reason was that my wife worked out how to lower the transaction costs by setting up the OCBC Blue Chip Investment Plan with a monthly investment amount of S$1,500. My wife even opened the Stan Chart online equities trading account to make manual investments into the SPDR STI ETF (ES3 on SGX), Phillip SGX APAC REIT ETF S$ (BYJ on SGX) and Vanguard FTSE All-World High Dividend Yield UCITS ETF (VHYD on LSE). But she makes the manual trades only occasionally on market dips and falls.
My wife continued with the POSB Invest-Saver monthly investments as a legacy component of her portfolio. A reminder of how far she has come. An ideal ETF investor because most of the financial research & analysis is done at the beginning when choosing the ETFs. Minimal monitoring and subsequent financial research & analysis are required. Should avoid individual stocks where possible. Suitable for both automatic and manual investing but a preference for automatic investing since it requires less work. Will try to lower transaction costs where possible but okay not to have the most efficient and cost-effective set up.
Me
Read through most of the available online information on the POSB Invest-Saver, even more than my wife and sister. Monitored the performance for one year before liquidated my POSB Invest-Saver portfolio. I didn’t like not being in control of the timing of my investments nor the higher transaction costs of automated investing.
Went on to do higher than basic level of financial research & analysis on ETFs and individual stocks. Set up Stan Chart online equities trading account and DBS Vickers with CDP account to construct two portfolios – one with individual stocks and the other with ETFs. Monitored the portfolios regularly and tracked their performances as well. However, the portfolios are overly complex and I’m currently trying to simplify them. Prognosis – suitable for manual investing and okay with both ETFs & individual stocks.
Can you identify with any of our investing personalities?
The purpose of this exercise is not to criticise or judge our investing personalities but to have some form of an assessment on what they are like based on the litmus test. I hope it was useful in helping you identify your investing personality.
Your brother’s is an interesting case. I am surprised he has not been influenced by you to at least pick up some form of automatic investing.
My hypothesis is that for most, it’s easier to pick up “manual investing” after starting “automatic investing” and realising the potential cons of “automatic investing”.
An example: They always charge you the highest price of the ETF incurred in the day. I guess that’s how they get the spread.
P.S: I am pretty sure your wife has been heavily influenced by you! Kudos!
My family is quite independent of each other. We are relatively close but rarely influence one another even though our values and beliefs can differ. My brother has a tendency to over-analyse on most things in life before taking an action step. He’s also not big on changing directions once he has committed to a path. Since he has decided against automated investing, he probably won’t look at it again for a long time.
Agree that it’s easier to pick up manual investing after trying out automated investing since you will have a better understanding of the benefits & cons and what works for you.
Haha, yes, I reckon my wife has been heavily influenced by me. Makes sense considering how we spend most of our time with each other. Good thing is that she questions the investing strategies we apply and is okay with us applying different approaches at times. It’s important for each party in the relationship/couple to check one another to ensure they are both aware of what’s happening to their combined finances. But it’s easy to lose track and one party can blow up the finances by making a terrible mistake unchecked. I saw it happen to my parents when my dad started trading in FX and making significant losses without my mum knowing for quite a while.