04 April 2011

You can be your own fund manager - part 2

In part 1, I emphasized that you could be your own fund manager by the reasons you understand yourself better than others and you would know how much risk and return you would like to take as well as the time horizon you would like to put your money into.

Rule #1 - the longer time horizon you can invest for, the higher return you can ask for.

If you are a youngster and happen to read my blog, I would like to congratulate you because you have the most precious asset - time. Most of the time the market is volatile depending on many reasons, and if you notice that, those higher return asset classes are both volatile and have higher returns. So even if you are low risk taker and having a lower income base, you still can ride on top of markets.

Rule #2 - the more experience you are, the higher risk you can take

Risk does not come from the volatility, but the innocence of the people on investment. Intelligent investor is a good book written by Benjamin Graham which I would like to recommend you to read through. It is similar to driving, after you take the driving lesson
and have some practice then only you can drive smoothly along the journey to wealth.

Rule #3 - stay on the circle of competence

Forget about the diversification first. You must recognize that you have limited circle of competence, and therefore just invest in the product or asset class you know well. You can start to do homework more before you make a big investment. Similar to swimming, you must first learn how to survive before you can swim further in the sea.

Having said that, you can start to know more about the investment products and invest in small amount first to gain experience before you can ready to investing in big amount. Always remember the rule - don't lose.


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