Hello! Hoped everyone had a great New Year Day holiday. As mentioned in my previous post, today I will be sharing with you about my own investment objectives and my reasons for it.
I have done up a simple diagram of my own investment objectives. I prefer splitting my investment objectives in period of 5 years so I can have a holistic view on how my investment style changes with the years.
In 5 Years:
Why: As some of you may know, I did not start out with a huge upfront capital in investing. The average size of my trade is only a few hundred dollars per transaction. The multiplier effect of investment increases when more shares are bought. Hence, I decided to dedicate my first 5 years of investing to aggressively growing my capital. Since, I am in the army and will be in the university during this period, my tolerance for risk is much higher.
How: I will do so by looking into growth and value stocks which have higher potential for price per share appreciation. I will try to lock in at least 20% gain in price before selling the shares completely. Hence my holding period is not very long term. With that, it is also important to protect my down side. When I started investing, I did not actively pursue a stop loss and caused a great deal of problems for me. With such high risk pursuit of capital growth, having strict stop loss is important to protect your downside risk.
- Look for growth and value stocks
- Sell when stocks appreciated at least 20% in price
- Strict stop loss to prevent down side risk
In 10 Years:
Why: After the 5th Year mark, I should be out in the working world and making a regular income. Although I would still be young, its important to start saving for retirement. Hence, the percentage of my portfolio changes with an extra element of preserving my capital. Overall, I am still growing my capital but less aggressively compared to 5 years ago.
How: Likewise, I will continue to look for growth and value stocks to fulfill my investment objective. The added component would be to source for income producing assets, like blue chips, bonds, fixed deposit to preserve my capital.
- Look for growth, value and income stocks
- For growth and value, same rule of selling when price appreciate at least 20%
- Same strict stop loss for growth and value stocks
- For income stocks, look for blue chips that pay regular dividends. Preferably reinvest those dividends.
In 15 Years:
Why: After the 10th year mark, I would be in my 30s with much more responsibilities. Most of us would also get a HDB in our 30s. This will incur more expenses and hence it is more wise to be less risky and protect more of your capital. Hence, preserving capital becomes more than half of my portfolio.
How: Pursuit for growth and value stocks become less important. Looking for stable income producing asset becomes paramount.
- Look for more income producing assets
- Same rules applies for growth and value stocks
its important to know how your investment journey will span out. Having a investment plan with clear investment objectives should help you make accurate investment decisions. When I first started out, I did not have such a plan, I plunged myself into different trades like a headless chicken and incurred heavy losses. Do not make the same mistake I did haha. Of course, life is not smooth sailing like you want it to be. Things change and crisis may emerge, thus it’s important to always review your investment plan and objectives yearly and tweak them accordingly. For those who may have yet to have an investment plan, feel free to try out my method of planning and let me know if its helpful. Here’s to a great 2017 for all of us!