Planning for a comfortable retirement and putting away enough capital are among many of Singaporeans' financial goals.
A survey in August 2016 on financial planning and money management commissioned by Citibank Singapore found that 40 per cent of 100 respondents ranked "ensuring financial independence post retirement" as their top financial goal. About 34 per cent of the respondents ranked "meeting adequate long-term healthcare needs and expenses" as their second-most important financial aspiration.
However, many investors, particularly first-timers, make mistakes when exploring the methods of saving and investing. And some of these can be costly, even derailing their long-term investment plans.
It is no wonder that many Singaporeans desire to learn more about money management matters, as the survey findings revealed. About 42 per cent of the survey's respondents said they could do with more knowledge on how to better manage their money, and build their assets and investments.
As a general rule-of-thumb, investors should be disciplined and informed regarding their financial matters.
"Focus on building a well-diversified core portfolio in line with your risk tolerance, which is likely to bring you closer to meeting your long-term financial goals," says Ms. Chan San-San, Citibank Singapore's head of wealth management and segments.
Many investors try to play the part of market punters. They over-speculate and gamble with their finances, thus making some expensive mistakes to chase short-term gains.
Says Ms. Chan: "We often see long-term investors speculating on short-term movements, in a bid to maximise gains."
"This often leads to many short-term tweaks to investment portfolios and causes investors to lose focus on their long-term goals."
"Learn to look past the market chatter, and if you really have to trade, set aside a small sum of 'play money' for this purpose, which will not jeopardise your long-term goals."
Investors often think that taking a concentrated position in a single investment will lead to maximal gains. But, more often than not, this leads to dismal results, says Ms. Chan.
"On the other hand, too much diversification into multiple sectors could impair performance," she adds.
The key lies in finding a balance. The Citigold Diversification Index (CDI) takes into consideration both Asset Allocation Index and Product Holding Index to ensure that clients' portfolios are well diversified and aligned with Citi's Model Portfolios.
It helps clients achieve sufficient portfolio diversification and serves as an asset allocation reference tool both for periodic evaluation and prospective investments.
Incorporating the academic value of portfolio theories, the tool develops realistic investment situations for a long-term investor, and is reviewed to align with Citi's house-views on various asset classes.
Legendary investor Peter Lynch once said: "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves."
Nobody can successfully time the market for a prolonged period of time, says Ms. Chan. Investors should keep to some tried-and-tested methods to build their wealth.
"Dollar-cost averaging, for instance, through Citibank's Regular Savings Plan, is likely to take away the devastating effect of buying the market at the top, while smoothing out the market’s fluctuations," she notes.
Overly cautious investors may take on too little risk, resulting in returns that are too low to meet one's financial goals. The flipside might see excessive fluctuations, which one might not be able to stomach.
Ms. Chan feels it is crucial to map financial goals according to one's risk tolerance.
Citi's proprietary advisory tool Total Wealth Advisor (TWA) allows investors to customise various risk profiles for various financial goals, be it an education goal or retirement planning or others.
The Portfolio Risk Evaluator (PRE) enables investors to review their investment portfolios in simulated risk-off scenarios, which leads to better decision making and avoidance of knee-jerk reactions to market fluctuations.
Selling out too soon on a performing investment is just as detrimental as over-staying in a loss-making one.
"It is important to have regular portfolio reviews and assess if the investment premise is still valid," says Ms. Chan.
Citi's Gold Standard Portfolio Reviews (GSPR) ensure that clients are engaged on a timely basis and the comprehensive four-prong approach aids in understanding clients' needs.
With the help of GSPR, investors get some help in examining market conditions and opportunities, as well as advice on asset allocation.
They also receive regular reviews and follow-ups to ensure that they stay ahead of the curve in meeting their financial goals.
While historical performance gives investors an overview of how the investment has performed in the past, Ms. Chan believes investors should not be overly reliant on this data.
"It is more important to ask what is the strategy that has resulted in the fund outperforming and the likelihood of this continuing into the future," she says.
Future prospects, macro trends and valuations of the market are other important factors, she notes.
Buying into a stock or fund when it has dropped by a certain percentage, with no regard for the fundamentals affecting the industry or market, is also a recipe for disaster.
"Things are often cheap for a reason, and unless you can ascertain and are comfortable with the reason behind the sell-off, it is often better to stay out," she adds.
Greed for short-term potential gains leads to investors chasing market highs, while fear of losses often leads to panic selling.
"Extreme displays of such emotions are most evident at market turning points, leading investors to buy high and sell low," says Ms. Chan.
Being inundated with financial news does not help. Sometimes, the news might not be updated, she points out.
"Similarly, when the latest hot tip is made known to you, chances are it has already been priced into the market security," she adds.
It is important to keep a clear head and tune out the noise. At Citibank, clients have the support of a dedicated Investment Advisory team that provides them with professional insight and expertise, helping them to avoid the pitfalls of emotional investing.
It is always a good practice to keep an eye on the bottom-line of your portfolio and tap the expertise of a financial planner to achieve your investment goals.
"A good investment adviser should ideally not only share a similar investment philosophy as you, but also have the ability to provide advice on issues and lend a listening ear where appropriate."
"The paybacks in finding the right investment adviser will, more often than not, be well worth the effort spent in finding one," says Ms. Chan.
At Citigold, a dedicated relationship manager, supported by a team of experts, will work closely with you to understand your financial objectives and help keep you on track to achieve them.
Mr. Warren Buffett, the third richest man in the world, warns against buying into investments which one does not understand.
"If one invests in single stocks, it is important to understand the business model and other intricacies of what impacts the business of these companies," says Ms. Chan.
She also warns investors to beware of fanciful marketing that detracts attention from the underlying performance of the investment product.
One of the best ways to avoid this is to build a core portfolio comprising well diversified unit trusts and keeping an eye on all hidden fees and expenses, she says.
Citi's Premier Funds Suite utilises a multi-disciplinary research approach that combines quantitative and qualitative metrics to identify a selection of global asset managers and funds with proven money management expertise.
Besides structuring the investment portfolio to suit their risk tolerance, investors should map their portfolio to the appropriate time horizon.
"Assigning an equity-heavy portfolio to retirement goals when one is fast approaching retirement age may result in sleepless nights; while an overly conservative portfolio concentrated in fixed income to the same goal when one is still young and building up his or her nest egg may result in mediocre returns," says Ms. Chan.
She also notes that a multitude of factors ranging from age, health, skill set to employment status need to be taken in consideration when defining an investment time horizon.
The opinions expressed in this 3-part advertorial should be regarded solely as general information, and does not constitute investment advice or a guarantee of returns. Neither the information nor any opinions expressed herein constitute or are intended to constitute an offer or invitation to any person (nor are they calculated to induce any offer or invitation from any person) to acquire, subscribe for or purchase any investment product. The views expressed herein do not necessarily reflect the views of Citibank Singapore Limited, Citibank N.A. nor any of its affiliates.
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