How GOOD Habits can help you make BETTER investment decisions

Investors December 15th, 2017
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Investing is an extremely stressful and painful process especially when there is a lot to consider and involves money. Every decision you make can affect your earning, your portfolio and how quickly you can achieve your financial goals.

When you make a loss in your investments, your brain remembers the pain. It remembers the defeat, the regrets and the anger that despite having carried out a throughout research, things still went against your expectations.

And likewise, when you make a nice profit from your investments, your brain remembers the sweetness, the sense of satisfaction, the pride and the greed that comes with it.

While you need to make a logical decision, your experience, mood and emotions may create certain level of biasness. For example, if you’re in good spirits, you may feel extra hopeful and your perception of risk may be lowered due to your emotions and mood.

It is wise to cultivate some good habits that keep you in check and help you make better investment decisions.

GOOD HABIT #1: DOING RESEARCH BEFORE MAKING DECISIONS   

Be it bonds, shares or currency exchange, every investment has a market risk involve. That is to say that there is a possibility where there may be a decrease in your investment value due to world events or economic developments that affects the entire market.

For example, currency risk of foreign investments. You may be looking at an investment in U.S. dollars, then it is worthwhile to put a little thought into how exchange rate shifts might affect the worth of your stocks in time to come.

Or perhaps if you’re intending to invest in shares of a company A, then it is important to research into the company’s market and industry outlook before you make a decision to buy.

Having background knowledge of the market you’re investing in is always important. Which is why on MoolahSense, we ensure to include a write-up on the issuer’s industry and their product or services.

These are background information that you can take to research further so that you can evaluate the risks involved before you actually invest.

It is important for you to at least have an idea of the market or environment of the business you’re investing in. That will then determine how comfortable you are to make an investment in this note.

GOOD HABIT #2: KEEPING YOUR EMOTIONS IN CHECK  

Based on a study published in the International Journal of Pscyhoanalysis led by the University Collage, London, U.K., investors could get carried away with excitement when the market is doing extremely well. When the market soars and your expectations are heightened, you may end up suppressing the negative emotions that might have been warning you of the high risks involved.

It is a good habit to always keep your emotions in check.

No matter how excited or how confident you are about a particular opportunity, it is important to manage your emotions and stay objective about it.

At MoolahSense, we make sure to provide all investors with important information that they need to know so that they can make an objective decision.

Through our proprietary credit assessment model, we evaluate each potential issuer’s credit history, strength of their financials, overall business model and nature/outlook of the industry they operate in etc before we publish them onto the platform.

These information will give you an idea of the credit rating of each company before you invest in them. Keep your emotions at bay, review these information and do a little research before you jump on any opportunity.

Make it a good habit to keep yourself in check that you’re not too excited.

GOOD HABIT #3: NOT PUTTING ALL EGGS INTO ONE BASKET

Putting all your eggs into one basket means that once your basket falls, all the eggs are gone.

Especially when a person has limited funds to invest, what they tend to do is that they will just pick one or two investments that they think is lucrative and put all their cash into it.

And that’s where the danger lies.

The risk of loss is concentrated if you only invest in ONE investment or in just one type of investment. It is important to diversify and spread your risks so that even if 1 basket fell, you have a lot more baskets on hand.

Our data scientist at MoolahSense worked out the sharpe ratio of average risk adjusted returns vs the number of campaigns invested based on a sample size of 2000.

Updated as of 30 Nov 2017

If you look at the chart, people who invest in 1-10 campaigns on our platform generally has a higher riskas compared to those who have invested in more. The average risk adjusted returns are also lesser than those who have invested more than 10 campaigns.

Which is why at MoolahSense, we’re a strong advocate of diversification. We always encourage investors on our platform to diversify their investments and spread their risks; This also give them a higher probability of getting better returns.

On our end, we always make sure that we have an abundant amount of campaigns available for your selection. With campaigns updated daily, you can then pick the campaigns suitable for your portfolio and invest within your own comfort zone.

With campaigns minimum as low as S$500, it also allows for easier diversification especially if budget could be an issue. You can explore our dashboard and look at the various campaigns available to plan the amount you wish to invest according to your own budget and investment goals.

GOOD HABITS, GOOD DECISIONS!

Cultivating good habits that help you make objective decisions will help you better managed your risks when it comes to investments. Remember to always research, avoid being emotional and always always diversify.

Remember these two keywords:

  1. Asset Allocation
  2. Diversification

To better manage your investments and risks, start by considering adding a variety of asset classes in your portfolio, and in each asset class, divide the money across various categories and campaigns. This way, you are able to balance out the returns and losses that you may incur in each and every investments.

Maybe not all investments would give you a sense of satisfaction, but if you diversify, you increase the chance that your investments might result in more satisfactory returns on the whole.