Hong Kuang Commodities Hong Kong: Seven things about Investing

1. Create a plan. A haphazard collection of mutual funds is not a real plan. Saving whatever remains from your income at month's end is also not a plan. A plan requires utilizing a retirement calculator, determining a specific goal for your savings, making measurable assumptions about taxes and rate-of-return, and then deciding what amount you have to save and what combination of investments can most likely give you results. Be sure you write down everything on paper or in the computer.

2. How much you save is more important than what you invest in. This is particularly true when you begin your investing career since the size of your contribution dwarfs the investment returns you will derive during an average month. True, distributing your investments among various kinds of assets (such as stocks, bonds, and cash) is vital; but right now, it is not nearly as wise as setting aside a sizeable chunk of money from your regular paycheck. In case you get frustrated whether to invest or not and end up tearing your 401(k) signup sheet, you have lost a great opportunity, no matter what happens to the market. Which leads us to another point...?

3. Your 401(k) and IRA are free money—even if you don’t get a match. Certainly, if you are given an employer match, you should take it. You do not need anyone from the future or even in the present to tell you that. Yet, even without a match, retirement accounts provide massive tax-savings. Would you throw away a tax-refund check? Therefore, do not waste the limited tax-freedom that Uncle Sam offers you yearly. If you can maximize your use of 401(k) and IRA, by all means, do it. Period. Then look into other tax-advantaged opportunities, such as 529 college savings plans, health savings accounts and savings bonds.

4. TV and headline news will not make you a better investor. On TV, investing seems to appear like a game. You sit before a big screen and periodically jump up to cheer and wave papers when a bell rings, or something like that. Honestly, I have no clue as to what is happening when I watch these shows; but I do know that investors who do a lot of trading make much less money compared to those who buy various mutual funds and almost never bother to observe how it goes. If you desire more fun in your life, enter equestrianism, collecting vintage cars, or another pastime less expensive than market-timing and stock-speculating.

5. Pay less, get more. Each ETF and mutual fund, whether inside a 401(k) or not, has an expense ratio, which shows you the share of your money taken out annually for operating costs: recordkeeping, big computer screens, polish for the fund manager’s boat, and others. The expense ratio is a very tiny amount, often somewhere from 0.1% to 2.0%. Ignore it at your peril. A slightly greater expense ratio means proportionately less money remaining for you in the long run, or, say, in a few decades. Studies have consistently shown that low expenses are some of the best determinants for deciding which funds will produce more in the future. Your 401(k) is legally obligated to present all included expenses. If it is not well presented on the document, investigate. It is both your right and your responsibility to know.

6. Bear markets are your friend. Warren Buffett illustrates this idea with a story about hamburgers: If you want to eat hamburgers and plan to do so next month, do you want the price to go up or down? Obviously not. Now, think of stocks, not burgers. If you plan to purchase some next month, you should be pleased when the price dips. This is not esoteric knowledge: Investors who were able to continue investing right through the troubled market of 2008-09 made more money than if the crash had never occurred. From my own personal experience, this is true.

7. If it sounds too good to be true Many people eagerly help themselves to your money by promising clandestine investment strategies you cannot find anywhere else, market returns without market risk, or something that involves an asset that has skyrocketed recently. Be very skeptical. The term “financial advisor” is unregulated. In fact, avoid it like the plague, or run away as you would from a house on fire!