Finance Smiths

Back at work for another week but the good news is that it’s CNY this long weekend. Looking forward to the lunches/dinners with family, relatives & friends, snacks and much needed rest since the start of the new year. I know it’s only been 3 weeks but Christmas and NYE celebrations already feel like ages ago. Anyway, it’s time for me to get back to the series of posts about the things I wished we knew when we first started investing. There’s been positive feedback on the first post so I shall take that as encouragement to continue with it.

Previously, I had provided an example allocation of the monthly cash savings of S$1,000:

Cash on hand – S$500

Investment cash – S$300

Emergency fund – S$200

For your sake, I’m assuming you have built up some cash savings from allowances, internships, part-time work and full-time work. If you have already started to build a decent investment portfolio with the cash savings, that’s fantastic. You probably know more than me but can continue reading just for your own interest if you want. If you are like me and only began to build an investment portfolio with your cash savings after starting at your full-time job, then I hope what I’m about to write will benefit you.

I was originally planning to write a post about portfolio allocation. Something related to working out how much of your existing and monthly cash savings to be allocated to individual stocks, ETFs, bonds etc. But I started to think about whether that’s really the next step for you to consider. After all, I had emphasized on the blog about the necessity of preparatory work to build a strong foundation. That’s not to say portfolio allocation isn’t important but I’m talking about something more fundamental, specifically your investing personality in this instance. If you are wondering what does investing personality mean, bear in mind it’s a concept I’m only just starting to understand.

What does investing personality mean?

This is the definition of personality – a set of distinctive traits and characteristics that are affected by the development of an individual in relation to his/her values, attitudes, habits and skills. Now apply it to what you are like when you invest. No idea what that means? It’s a good thing. Because no one actually knows what his/her investing personality is until the person starts investing. I’m not talking about the way you think, do your assignment research or interact with your peers in group projects when you were a student. Neither am I talking about the way you work, cooperate with your colleagues or how many hours you can pull at your first full-time job.

Investing personality is about so many other things it’s almost like a different side of you:

• How interested are you in doing your own research on equities and bonds?
• Do you enjoy reading quarterly results and annual reports?
• Do paper losses on equities and bonds make you panic and sell your holdings?
• How well can you control your emotions and execute your strategy in flat, bull and bear markets?
• How often do you check your portfolio performance?
• Do you prefer capital gain, income or a mix of both in your portfolio?
• How much time and effort do you want to spend maintaining your portfolio?
• What kind of returns are you looking for from your portfolio?
• Does your portfolio performance significantly affect your work and personal lives?

Just imagine. These are only some of the questions about yourself that you will never know the answers to until you actually start to invest. The worst thing is when you find these answers from making costly mistakes that can potentially deter you from investing. It’s the main reason why investors that have gone through multiple market cycles will generally have a better understanding of their investing personalities. The rest of us will have to let time teach us those lessons.

What are the different types of investing personalities?

I wish there was an easy way to differentiate the various types of investing personalities. The best attempt I have seen so far at doing it is this post by FIRECracker and Wanderer on their Millennial Revolution blog: Do you have the right personality for FIRE? The way they link the discussion to the Myer Briggs personality test is an excellent start to understanding your investing personality. I highly recommend a read of their post.

How about a litmus test for your investing personality?

I’m sure you have heard of the litmus test from your chemistry lessons. It’s a test for acidity or alkalinity using litmus. Simple, effective and decisive. If we are to design and apply a litmus test to your investing personality, the simplest version would have to be a test of your preferences for manual vs automated investing and individual stocks vs ETFs. Understanding this at the beginning is going to go a long way in how you build a portfolio and what you build it with. Unknowingly, I designed this litmus test for my family, wife and I a few years ago. I just didn’t realise its results and significance until now. Of course, you are welcome to design your own litmus test but I suspect any version of it will require you to actually invest at least a little of your own money. This is what I did and you can draw your own lessons.

Setting up of POSB Invest-Saver (S$100) from Jan 2014

In Jan 2014, my wife and I returned to Singapore after spending a number of years studying, working and living in Australia. Anxious to get started on building a portfolio in Singapore but with little knowledge of the local markets, I set up the POSB Invest-Saver for both of us with a monthly investment amount of S$100 each. I was reading up on this product in 2013 and found the convenient application process, relatively low minimum monthly investment amount & transaction cost, automated investing and dollar cost averaging strategy attractive. I discussed this at length with the rest of my family and they were interested in setting up the POSB Invest-Saver as well. 3 years have passed since then and it’s now Jan 2017. Want to know what has happened to all of our POSB Invest-Savers? Stay tuned to find out!

This is terrible and sad news. I was in a training session in the afternoon when I received a Whatsapp message from my sister about this: A man has mowed down several people in Melbourne CBD (Bourke Street Mall), leaving a number killed and many others injured (some with serious injuries). I have read about horrific incidents like these in the news in other cities such as Nice and Berlin but this one hits closer to home. My wife, sister and I have studied, worked and lived in Melbourne for a number of years. We have friends & colleagues there and we walked that area down Bourke Street almost every other day. It’s a city that holds many happy memories for us – I met my wife there and it was our first home away from Singapore. A place we love dearly and a sanctuary we try to visit even after moving back to Singapore.

It’s big news at my wife’s place of employment, the Singapore office of an Australian bank. She has colleagues whom are either from Melbourne or with close personal/family ties to Melbourne. For such a violent act to happen on a Friday afternoon when it’s so busy with people has made this even more shocking. Is this what the world is coming to? It may not have been an act of terrorism but to think one man can have such disregard for human life. It’s unthinkable.

The only thing we can do is to check that our friends and colleagues in Melbourne are safe and send our well wishes to the people there. In time, the city will recover from the damage of this horrific madness. For now, let’s take a moment of silence for those affected by this incident and the rest of the people in Melbourne. You have our support in this tragic time.