Active investing can stimulate a rush of dopamine, a neurotransmitter associated with excitement and, potentially, with addiction.
Akin to gambling, active investing gives investors a thrill. The downside is the huge emotional dip when things don’t turn out as planned.
Are you addicted to active investing?
Watch this video as Christopher Tan, CEO of Providend, shares his experience of falling unconsciously into the trap of market timing last year.
Hello everyone. Thank you for watching this video clip. We hope that through this way, we’ll be able to share some of our thinking and hopefully leave some food for thought and make small impact in your financial and non-financial life.
Today I want to talk a little bit about investment.
Are you investing or gambling? Watch this video to understand what’s the difference.
Some time back last year, to be exact on the 22nd December of last year, I decided to use my SRS money to invest into a portfolio of Dimensional Funds which we use for our clients. And you know just one month or one a half months later, when I checked how it has performed, I was just totally surprised because the returns were so good.
I was getting about I think about 14% return in just less than two months. And that got me really excited. And I was sharing with my management team how well my investments have done. And I was just thinking when should I put in the second tranche? When would be the best time to invest into the stock market?
And as I was talking to my wife and telling her about this. She made a comment. And I remembered specifically I was driving. And in our Singaporean language she was saying, “What’s the point of checking every day? Sometimes the market is going to go up. Sometimes the market is going to go down. What is most important is when you need the money, it is up.”
And I thought, “Wow, that was wisdom.” Unknowingly, I was caught into trying to time the market, something that I preached against. And so the next thing I did was that I quickly started the RSP account. And I no longer try to look at a performance on a regular basis.
And so, if you feel that at times and you want to invest money and you are trying to time the market, please do not follow my example.
My suggestion to you is that, well, invest regularly.
I’ll say, as a guide, if you have got a sum of money to invest regularly, maybe invest about 70% to 80% and keeping 20% aside. And this 20%, keep it as your war chest. And so that, if the market really goes down, you can actually put it in and invest it, for the long term.
Now, this is not market timing.
It is about investing regularly still because you are saying you cannot time the market but keeping enough cash so that when the markets go down, and they will we just do not know when, you have a stack of money or a stash of money whereby you can actually invest into the market. So you win-win on both sides.
So, I hope this video is helpful for you. And if you find it to be useful, please share it with your friends. Thank you very much for watching.
At Providend, we know that the money you entrust to us is hard-earned and we are committed to managing it responsibly. Instead of timing the market, we prefer to invest your money based on decades of academic research, Nobel Prize winning thinking that span across time and markets.
We do not charge a fee at the first consultation meeting. If you would like an honest second opinion on your current investment portfolio, financial and/or retirement plan, make an appointment with us today.