Chew Hock Beng
What do you really want as a retail investors so that you can sleep well at night?
Returns. Of course, everyone loves high return on their investment!
In search of such returns, so what do retail investors actually do?
Just do it! Go for return!
Hence they started trading. From hear-say, they start picking stocks from anyone who has made money, thinking it’s the best stock tips and starting to punt. Hoping these stocks tips could help them to grow and double their wealth within the shortest possible of time. Soon after they started to apply leverage trading which is very likely not suitable for their risk appetite and investing time horizon.
To make the matter worse, some do not have any ideas what they are invested in. You must heard many times people have burnt their fingers. They invest for the sick of investing because everybody say have to invest. So follow, can’t be wrong.
So it’s your best interest not invest in products you do not understand. And do not invest in “hot picks” or “trendy stocks” just because others are buying them.
In addition, they do not have any specific concrete goal to follow and tracking their progress. No duration to gauge on what kind of returns should be expecting. No yardstick measurement to follow.
It’s always good to understand and find out where is the place where your money could work for you. Setting goal is critical as it sets the direction and provide a path of certainty.
So you can tell that investing is not everything about returns, especially when there so many investment instruments in the market. Finding the right and suitable tools is important. In fact, handling risk is the important element in investment.
As retail investors have no idea of their risk profile, when market volatility arrives, they don’t know how to react because they have no idea about their personal risk preferences.
So what is risk profile?
Knowing your risk profile is just like knowing your personal health condition. Instead of wondering if your body can react to the tough physical training, it’s the same when your hard-earned money is subject to the market stress-test. In fact, it’s putting your emotion to test whether you can take the pressure of the ups and downs of market movement.
So doing a risk profile assessment to understand your risk appetite and risk preferences could be a good step to embark at.
For now, let’s assume you’re balanced risk taker. So a typical 50% Equity and 50% Bonds portfolio is set up for your profile type. Let’s say the equity market went down by 50%, and Bond market drop by 10%. At this instance, your portfolio is down by 30%, instead of down by 50% if you’re not aware of your risk profile. You can see that such portfolio manage risk and provides diversification. Mostly importantly, it takes lesser time and effort for the balanced portfolio during the recovery market.
Having the right knowledge and applying it right pays. The last 2 questions could be a useful thought-provoking for you.
Which group do you belongs to?
And which group do you prefer?
I think the choice is clear.