Here is a very simplified guide to investing in stocks for a minimum 10-20 years out. Feel free to add your comments!
- Invest in money you can afford to lose, or at least locked up for more than 3 years. That means having set aside money in case of unemployment, emergencies and even leisure. These monies can and should be kept in "safe instruments" such as your Special Account or Fixed Deposits.
- Have at least a 8 stock portfolio with a minimum of $5,000 in each stock if possible. This is to reduce the brokerage costs as well as the time spent on following the developments of each company.
- Read stock investment books. The bare minimum, you should read books written by Jeremy Siegel "The Future For Investors
". Subsequently, you should go to the library and borrow books by Teh Hooi Ling, namely the "Show Me The Money" series.
- Assuming that you intend to keep an 8-stock portfolio initially. 60-70% of your money should be in stable blue chips that have dividends. Somethings that I like very much are Singapore Post and SMRT as well as the smaller finance companies in Singapore.
- For the remainder 30-40%, you can go for smaller "growth companies" These could be companies with very small market capitalization but have tremendous growth opportunities. If you really want to , 5-10% of your money can be placed in "concept stocks" or speculative plays. By having this mix, this will ensure that you have some income (which you should re-invest) while not forsaking on possible capital appreciation.
- For all the stocks that you buy, make sure that the Price-to-earnings and Price-to-book ratios are slightly below average, relative to their peers. Further, jot down the reasons why you bought that stock. This description could be 1-3 lines, but it will be useful when you intend to sell.
- With you new found financial knowledge, monitor your stocks through the SGX website or other watch lists that you may have setup. See if the story is going on to plan.
- If for some reason, you think that the company is starting to become overpriced or that its fundamentals have deteriorated (this should not happen if you picked properly), then it is also time for you to sell.
- Invest regularly. Repeat the earlier steps or put a fix money (which should include the dividends received) across the stocks that you already own. If you identify a great candidate, be sure that you are able to monitor that company, on top of the existing portfolio.
- Diversify outside of Singapore stocks through either ETFs or direct investing with your broker or trading platform. Be aware that investing overseas more research as the operating conditions as well as information flow is much different that in Singapore.
