SINGAPORE — From failed investments to not making informed decisions, we’ve all had our fair shares of financial mistakes. Thankfully, we have the help of those who have walked the path before to guide us back to the right track.
This is part of a series where Yahoo Finance Singapore will focus on different aspects of millennials and their finances. In this seventh part, we hear from different financial experts who share with us the best piece of financial advice they have ever received, as well as their worst financial mistakes and what we can learn from them.
1. Always make informed decisions
When it comes to financial decisions like investing, millennials in their twenties can sometimes be less disciplined in reading up and getting a better understanding of the fundamentals.
For instance, some choose to put money into stocks or investment products because of the hype or because it seemed as though it was a good investment. While they may not be bad decisions, financial experts wanted that more initial analysis can be done.
“It’s easy to follow trends but the real alpha is usually made before you hear about it through your own research,” said Salim Dhanani, CEO and co-founder BigPay, a financial mobile app.
“You’ll always be better off doing a bit of due diligence and maybe, you’ll get to the same decision, but you would have taken out some unnecessary risk,” he added.
2. Never underestimate the benefits of compound interest
Millennials often believe that they need to start investing at a certain point in their life or by a certain age, no matter how small the amount. That’s because one can benefit from long term growth trends and compound interest, depending on your investment product.
As such, Salim also thinks it’s good for youths to start investing young and to never underestimate the benefits of compound interest.
“It’s incredibly hard to time the market. You may get it perfectly right, but probabilistically, you will not. To mitigate timing risk, always remember that you can generally get a greater upside, or limit downside risk, by averaging into a market position when the trend is going up, and averaging out when there trend is going down,” he said.
While this rule is not without exceptions, Salim has assured that this is a piece of advice that has helped him throughout the years.
3. Know the difference between investing and speculating
Profiting within days from investing can seem like a great option for fast cash, but financial experts also warn of the dangers of speculating the market from there.
Gregory Van, CEO of Endowus, a Singapore-based financial technology company, made his first investment in Amazon and profited 7% in 3 days. However, he soon began speculating, which resulted in a great disparity in returns. From an initial 30% profit, he made a 95% loss eventually because of the Global Financial Crisis.
As such, Van advises that it is crucial to differentiate between investing and speculating. It definitely is possible for someone to make money by active trading, but it might be difficult to make money consistently through speculation.
“Personally, this whole experience was extremely humbling. It set me on the course towards an academic, responsible, and evidence-based approach to investing which will allow investors to see good returns in the long run,” he shared.
4. Some decisions can be a gamble
As a young finance professional, Gavin Chia, Head of Managed Investments and Investment Advisory of Standard Chartered Bank Singapore, dabbled in many different instruments.
And like most youths, Chia started trading in options that have implicit leverage in the instrument, so as to make money faster. However, he had failed to understand the liquidity issues and the instrument soon acted opposite to the time in the market adage as option values drop to zero over time.
Hence, he holds dear a valuable lesson not to hold on to option positions until they turn worthless. Millennials might want to make the most of their buck but it is always important to discern the right time to pull out too.
“I learnt that hoping that markets move in your favour at the last moment is a gamble, not an investment decision,” he warned.
5. Money should be a tool, not a love
There is a need for millennials to plan their finances for their future but they should never lose sight of the fact that money is not an end in itself, but a means to support our life goals.
Therefore, the famous proverb that ‘the love of money is the root of all evil’ is a belief that Chuin Ting Weber, CEO of MoneyOwl, a bionic financial advisor, holds on strongly to.
“If we keep in mind that our financial plan is ultimately to support what is truly important to us in life, we will focus on sufficiency and reliability in our financial plan, rather than maximisation and chasing after the wind,” Weber shared.
“I believe it achieves better outcomes and a happier, less stressful life, both now and in the future,” she added.